Risk per trade in forex: how to size a position
Position sizing decides how much a losing trade costs you. Fix the risk before you enter, and the position size follows from the stop.
The calculation
Position size = (account balance × risk %) ÷ (stop distance in pips × pip value per unit)
Worked example. Your account is $10,000 and you risk 1% per trade, so the most you can lose is $100. Your plan puts the stop 50 pips from entry on EUR/USD. For a standard lot (100,000 units) one pip is worth about $10, so a 50-pip stop risks about $500 per lot. $100 ÷ $500 = 0.2 lots.
Pip value depends on the pair and on your account currency. Check the contract specification from your broker before you size a trade.
Rules that keep the risk fixed
- Set the risk percentage in the plan, and do not change it after you enter.
- Place the stop where the setup is invalidated, then size the position. Never widen a stop to fit a size you want.
- Use a daily loss limit, so one bad day cannot become a bad week.
- Count open trades that share a currency. Two trades on EUR/USD and EUR/GBP can be one exposure to the euro.
- Record the risk on every trade in your journal.
Why small risk per trade matters
Losing streaks are normal in any strategy. At 1% risk per trade, ten losses in a row cost about 9.6% of the account. Larger risk shortens how long you can keep trading through a losing run, even if the strategy itself is sound.
The Sigma Trader's 12-week Traderpreneur programme covers writing a plan, fixed risk and reviewing trades. See the programme.
Risk warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. You could lose more than your initial deposit. This page is education only and is not financial advice. Simulated and backtested results do not guarantee future results.