Module 1: Position sizing and stops · Lesson 2 of 8
Calculating position size from stop distance
3 min read
To find your position size, divide the money you are prepared to risk by the stop-loss distance in pips multiplied by the value of one pip per lot. This makes sure that, whatever the stop distance, hitting it costs the same planned amount.
The formula
Position size (lots) = amount at risk ÷ (stop distance in pips × pip value per lot)
For EUR/USD and other pairs where the US dollar is the second currency and your account is in dollars, one pip on a standard lot (100,000 units) is about $10, on a mini lot (10,000 units) about $1 and on a micro lot (1,000 units) about $0.10.
Worked example 1
Example: Your account is $10,000 and you risk 1%, which is $100. You plan to buy EUR/USD with a stop-loss 25 pips below your entry. Position size = $100 ÷ (25 × $10) = $100 ÷ $250 = 0.4 lots, which is 4 mini lots or 40,000 units.
If the stop is hit, you lose 25 pips × $4 per pip = $100, exactly as planned.
Worked example 2
Example: Your account is $5,000 and you risk 1%, which is $50. Your stop is 40 pips away. Position size = $50 ÷ (40 × $10) = $50 ÷ $400 = 0.125 lots. Most platforms allow steps of 0.01 lots, so you round down to 0.12 lots.
Rounding down keeps your risk at or slightly below your limit. Rounding up would quietly push it above.
Same risk, different stops
| Stop distance | Risk ($10,000 at 1%) | Position size |
|---|---|---|
| 10 pips | $100 | 1.0 lot |
| 25 pips | $100 | 0.4 lots |
| 50 pips | $100 | 0.2 lots |
| 100 pips | $100 | 0.1 lots |
A wider stop means a smaller position, and a tighter stop allows a larger one. The money at risk stays the same.
Other pairs
Pip values differ when the dollar is not the second currency, for example on USD/JPY or EUR/GBP, and they move slightly as prices change. Most platforms show the pip value, so confirm it before sizing a trade.
Tip: Work out the stop level first, then the position size. Never pick a lot size first and squeeze the stop to fit it.
Key takeaways
- Position size = amount at risk ÷ (stop pips × pip value per lot).
- On USD-quoted pairs, a standard lot pip is about $10.
- Round position sizes down so you never exceed your planned risk.
- Wider stops need smaller positions to keep risk constant.
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