The Golden Rule
Never risk more than 1-2% of your account on a single trade. This is non-negotiable. A 1% risk means 100 consecutive losses to blow your account. A 5% risk means 20. The math is clear — smaller risk per trade equals longer survival and more opportunities to profit.
The Position Sizing Formula
Position Size = (Account Balance × Risk Percentage) ÷ (Entry Price − Stop Loss Price)
Example: $10,000 account, 1% risk ($100), entry at $2,000, stop at $1,950 (50-point stop). Position size = $100 ÷ $50 = 2 units.
Forex Lot Sizing
For forex: Lot Size = Risk Amount ÷ (Stop Loss in Pips × Pip Value). For EUR/USD with $100 risk and 20-pip stop: Lot Size = $100 ÷ (20 × $10) = 0.5 lots. Use our free position size calculator to compute this instantly.
Adjusting for Volatility
When ATR is high, your stop loss is wider, so your position size decreases automatically with this formula. When ATR is low, stops are tighter and position size increases. This naturally adjusts your exposure to market conditions.
Size Off the Stop, Never Off Conviction
Position size is a function of two things only: the percentage of your account you are willing to risk, and the distance to your stop. Conviction does not enter the equation. The wider your stop, the smaller your size — that is the mechanism that keeps your dollar risk constant across every trade. Worked example: a $10,000 account risking 1% ($100) with a stop 50 points away can hold a position of $100 ÷ 50 = $2 per point. Move the stop to 100 points and the size halves automatically. Risk stays fixed; only size flexes.
Fixed-Fractional vs Fixed-Dollar in Drawdown
Risking a fixed percentage of current equity (fixed-fractional) is what lets accounts survive losing streaks: as equity falls, your dollar risk falls with it, so a drawdown decelerates instead of compounding into ruin. A fixed-dollar risk feels simpler but punishes you precisely when you are weakest. Combine percentage sizing with the stop-placement rules so the stop reflects where your idea is wrong, not where your size is convenient.
Frequently asked questions
How much should I risk per trade?
Professional traders risk 0.5 to 2 percent of their account per trade. Beginners should start at 0.5 percent. Prop firm evaluations typically work best at 0.5 to 1 percent. Never exceed 2 percent regardless of how confident you are in the setup.
How do I calculate lot size for forex?
Lot size equals your risk amount in dollars divided by your stop loss distance in pips multiplied by the pip value. For a standard lot on EUR/USD the pip value is 10 dollars. Use the free calculator at quantum-algo.com/tools for instant calculation.