Every professional trader in the world knows exactly how many lots to trade before they enter. Not roughly — exactly, to the decimal place. This single calculation, done correctly every single time, is what separates traders who survive long-term from those who blow up. It takes 30 seconds. There is no excuse not to do it.
Position sizing is the calculation that determines how many lots to trade so that if your stop loss is hit, you lose exactly the amount you planned to risk — no more, no less.
The formula
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Lot Size = (Account Balance × Risk%) ÷ (Stop Loss pips × Pip Value per lot)
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Worked example
Account: $10,000 · Risk: 1% · Stop: 40 pips · Pair: EUR/USD
1. Max dollar risk: $10,000 × 1% = $100
2. Pip value (mini lot): $1/pip
3. Lot size: $100 ÷ (40 × $1) = 2.5 mini lots = 0.25 standard lots
Enter 0.25 lots. If stopped out exactly at your stop, you lose $100 — exactly 1% of account.
The stop comes first — always
The stop loss is determined by the chart, not by your budget. You find where your trade idea is technically wrong, place the stop there, then size the position so losing to that stop costs your planned risk amount.
Never work backward from "I want to risk X pips" — that produces technically meaningless stops.
Complete position sizing on GBP/USD:
Account: $5,000 · Risk: 1% ($50) · Entry: 1.2650 · Stop: 1.2610 (40 pips) · Target: 1.2730 (80 pips)
Lot size = $50 ÷ (40 × $1) = 1.25 mini lots → round down to 0.12 lots
If stopped: 40 pips x $1.20 = $48 ≈ 1% ✓
If target hit: 80 pips x $1.20 = $96 ≈ 2% ✓
R:R = 1:2 ✓
NGX parallel: Same logic for stock sizing. ₦500,000 account, 2% risk (₦10,000), buying ZENITH BANK with stop ₦1.50 below entry:
Shares = ₦10,000 ÷ ₦1.50 = 6,666 shares maximum
This keeps your loss fixed regardless of whether the stock gaps or hits your stop exactly.
Eyeballing position size — "0.5 lots feels about right." Without calculating, a wide stop combined with a large lot size can risk 10–15% of your account on a single trade. Three losses in a row and months of gains are gone.
Recalculate position size before every single entry. Your account balance changes after wins and losses — last week's lot size is wrong this week. Build a simple spreadsheet or phone note with the formula. The 30-second recalculation is your protection against one trade destroying your account.
Position sizing is the formula that connects your risk management rules to your chart analysis — get it right every trade and no single loss will ever seriously damage your account.
