Position sizing determines how much you risk on each trade. It's the most important skill in trading — more important than your strategy, your win rate, or your analysis. Here's how to do it right.
Lot Size = (Account Balance × Risk %) ÷ (Stop Loss in Pips × Pip Value)
| Input | Value |
|---|---|
| Account Balance | $100,000 |
| Risk Per Trade | 1% = $1,000 |
| Stop Loss | 25 pips |
| Pip Value (EUR/USD) | $10 per standard lot |
| Lot Size | $1,000 ÷ (25 × $10) = 4.0 lots |
On a prop firm account with 5% daily drawdown limit, 1% risk per trade gives you 5 consecutive losses before breaching. At 2%, you only get 2.5 losses. At 0.5%, you get 10 losses — very safe but slower to reach profit targets.
| Pair | Pip Value (1 lot) |
|---|---|
| EUR/USD | $10.00 |
| GBP/USD | $10.00 |
| USD/JPY | ~$6.50 |
| USD/CAD | ~$6.70 |
| XAU/USD (Gold) | $1.00 per 0.01 lot |
Full reference: Pip Value Calculator
• Using the same lot size regardless of stop loss distance
• Ignoring pip value differences between pairs
• Risking too much on "high conviction" trades
• Not adjusting for prop firm drawdown limits