Sizing Your Position from the Stop
First decide the most you'll lose on this trade, then work back to the lot size from the stop distance. That's the heart of risk control.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
Every lesson has an interactive simulation you can drag and play, plus a quick quiz. Sign up free to use them and save your progress automatically. Here is the text version of this lesson.
Not sure yet? Try the first lesson (no sign-up needed)「What Is a Pending Order?」。
Text version · Forex: Pending Orders & Risk, lesson 8: “Sizing Your Position from the Stop”
First decide the most you'll lose on this trade, then work back to the lot size from the stop distance. That's the heart of risk control.
First decide the most this trade can lose
risk per trade is usually 0.5%–2% of the account. With a $10,000 account and 1% risk, this trade loses at most $100 if stopped out. Decide the money first, then the position size.
Work back from stop distance to lot size
Lot size = risk amount ÷ (stop distance in pips × pip value per lot). $100 ÷ (25 pips × $10) = 0.4 lots; widen the stop to 50 pips and you can only trade 0.2 lots.
Leverage isn't risk
Leverage only decides how much margin these 0.4 lots lock up. How much you lose at the stop depends only on lot size and stop distance: that's the heart of position sizing.
Small risk survives losing streaks
Lose 1% per trade and after 10 losses in a row about 90% is left; lose 10% per trade and only about 35% is left, needing nearly a 200% gain to get back to even (recovery gain).
Key takeaways
- Set your risk per trade first (commonly 0.5%–2%), then calculate the lot size, rather than picking a size by feel.
- Lot size = risk amount ÷ (stop in pips × pip value per lot), rounded down.
- A wider stop means a smaller size for the same risk amount. Leverage only affects margin, not the risk you calculated.
- Small risk survives losing streaks: at 1% per trade, 10 losses in a row leave about 90%; at 10% per trade, only about 35%.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Keep the defaults ($10,000, 1% risk, 25-pip stop): what's the "Lot size to trade"? How much do you actually lose if stopped out?
- Widen the stop to 50 pips: what's the lot size now? Did "Actual loss at stop" change?
- Switch to USD/JPY (about $6.67 per pip per lot), still with a 25-pip stop: why is the lot size bigger than for EUR/USD?
- Raise risk per trade to 5%: how much of the account is left after the 10-trade losing streak below? Compare with 1%.
Quiz and explanations
- 1. Your account is $20,000, risk per trade is 1%, and your EUR/USD stop is 40 pips ($10 per pip per lot). How many lots should you trade?
- Answer: 0.5 lots.Risk amount $200; $200 ÷ (40 × $10) = 0.5 lots.
- 2. You widen your stop from 20 pips to 40 pips. To keep the same risk amount, your lot size should…
- Answer: Halve.Double the stop distance means half the size, so the loss if stopped out stays the same.
- 3. Risking 2% per trade, roughly what's left of your account after 5 losses in a row?
- Answer: About 90%.Each loss leaves 98%: 0.98 to the 5th power ≈ 0.904, about 90%.
Terms in this lesson
- margin (Margin): The deposit set aside when you open a position = position value ÷ leverage.
- position sizing (Position Sizing): Deciding how much to buy on each trade based on how much risk you can take.
- recovery gain (Recovery Gain): The gain needed to get back to even after a drawdown = drawdown ÷ (1 − drawdown); lose 50% and you need +100%.
- risk per trade (Risk per Trade): How much you're willing to lose if a trade hits its stop-loss, usually 0.5%–2% of the account.
- spread (Spread): The gap between the Ask and the Bid, a hidden cost on every trade.
- stop-loss (Stop Loss): Automatically closes a position when price moves against you to a preset level, capping your maximum loss.