Position Sizing in Forex: The Complete Guide to Calculating Lot Size

Position sizing is the single most important skill in trading — more important than your entry strategy, more important than your indicator setup, and more important than picking the right currency pair. Get it wrong and even the best strategy will blow your account. Get it right and you can survive losing streaks, stay in the game, and let your edge play out over time.

Yet most beginner traders skip straight past it. They open a standard lot because it "sounds right" or trade the same size on every setup regardless of the stop loss distance. This guide fixes that.

The Position Sizing Formula

Every trade you take should be sized using this formula:

That's it. Three inputs — your account size, how much you're willing to risk, and how far away your stop is — and you get the exact number of lots to trade. No guessing, no "feeling" the size. Pure math.

Understanding Lot Sizes

Before we run the numbers, you need to understand what a "lot" actually is in forex. A lot is a standardised unit of currency. There are three common sizes:

When your broker shows "0.15 lots", that's 1 mini lot + 5 micro lots, or 15,000 currency units. The key insight is that pip value scales linearly with lot size — double the lots, double the risk per pip.

Worked Example: £10,000 Account

Let's walk through a real scenario. You have a £10,000 account, you want to risk 1% per trade, and your analysis gives you a 50-pip stop loss on EUR/USD.

Step 1: Calculate your risk amount. £10,000 × 1% = £100. This is the maximum you're willing to lose on this trade.

Step 2: Work out the pip cost at 1 standard lot. For EUR/USD, one pip on a standard lot = $10, which is approximately £7.94 at current exchange rates.

Step 3: Calculate the total risk at 1 lot. 50 pips × £7.94 = £397. That's far too much — nearly 4% of your account.

Step 4: Find the right lot size. £100 ÷ (50 × £7.94) = 0.25 lots. That's 2.5 mini lots, or 25,000 units.

At 0.25 lots, if your stop gets hit you lose exactly £100 — 1% of your account. If the trade runs to a 1:2 target (100 pips), you make £200.

Why the 1% Rule Exists

The 1% rule isn't arbitrary — it's survival mathematics. If you risk 1% per trade, you'd need 100 consecutive losing trades to wipe your account. Even the worst strategy in the world rarely produces 100 losses in a row.

Here's how different risk levels affect account drawdowns after 10 consecutive losses:

At 1%, a 10-loss streak costs you less than 10% and recovery is straightforward. At 10%, that same streak costs you 65% and you need to nearly triple your remaining balance just to get back to even. This is why position sizing matters more than your win rate.

How Stop Loss Distance Changes Everything

This is where most traders go wrong. They use the same lot size regardless of where their stop sits. But a 20-pip stop and a 100-pip stop require completely different position sizes to maintain the same risk.

Notice the risk amount stays the same — £100 every time. That's the point. Whether you're scalping with a tight stop or swing trading with a wide one, you lose the same amount if you're wrong. The lot size adjusts to make that happen.

Position Sizing for Different Account Sizes

Smaller accounts face a practical problem: micro lot minimums. If you have a £500 account risking 1% (£5) with a 50-pip stop, the math gives you 0.01 lots — one micro lot. That's the minimum on most brokers, so you can't go smaller. This means your effective risk might be slightly above 1% on tight setups.

With a £1,000 account, you get more flexibility. At a 50-pip stop, 1% risk gives you 0.025 lots — but most brokers round to 0.02 or 0.03. This is fine. The goal is approximate consistency, not decimal perfection.

Once you're above £5,000, position sizing works smoothly at all stop distances. Below that, you'll occasionally need to accept slightly imprecise sizing or skip setups where the stop is too tight for your minimum lot increment.

Adjusting Risk by Setup Quality

Not all trades are created equal. Many experienced traders use a tiered risk system. An A+ setup at a key institutional level with confluence might warrant 2% risk. A B setup with moderate confluence gets 1%. A C setup that still meets your criteria but feels less clean gets 0.5% or gets skipped entirely.

This makes intuitive sense — you want more skin in the game on your highest-conviction trades. Just make sure your maximum never exceeds 3% on a single position. Even the best setup can lose.

Common Position Sizing Mistakes

Trading the same lot size on every trade

If you always trade 0.5 lots, a 20-pip stop risks £79 but a 100-pip stop risks £397. Same lot size, wildly different risk. One bad swing trade could wipe out a month of scalping profits.

Ignoring the spread

Your actual stop distance includes the spread. If your chart shows a 30-pip stop on EUR/USD but your broker charges a 1.5-pip spread, your real risk distance is 31.5 pips. On exotic pairs with 5–10 pip spreads, this matters significantly.

Moving your stop after entry

If you calculated position size for a 50-pip stop then moved it to 80 pips "to give it room", you've just increased your risk by 60%. Either accept the original stop or recalculate the position size for the wider stop before entry.

Risking more to "make back" a loss

After a losing trade, the temptation is to increase size on the next trade to recover. This is the fastest path to blowing an account. Your position size formula doesn't care about your last trade — it only cares about your current balance, your risk percentage, and this trade's stop distance.

Position Sizing with Multiple Open Trades

If you have three trades open, each risking 1%, your total portfolio risk is 3%. This is important to track. Many traders cap total open risk at 5–6%, meaning they'll run a maximum of 5–6 trades at 1% risk simultaneously.

Also consider correlation. Three long positions on EUR/USD, GBP/USD, and AUD/USD are essentially triple exposure to USD weakness. If the dollar strengthens, all three lose. Correlated positions should count as amplified risk.

Automating Your Position Sizing

Calculating position size manually before every trade adds friction — and friction leads to shortcuts. The most disciplined traders either use a position sizing calculator (like ours) with the browser tab pinned, or build the calculation directly into their trading platform.

Most trading platforms support custom scripts: TradingView has Pine Script, MetaTrader has MQL4/MQL5, and cTrader has cAlgo. A simple script that reads your account balance, accepts your intended stop loss in pips, applies your risk percentage, and outputs the lot size eliminates human error entirely. No more rounding up because the correct size "feels too small" or doubling up because you're confident about a setup.

If coding isn't your strength, a spreadsheet works fine. Set up columns for account balance, risk percentage, stop loss in pips, pip value, and calculated lot size. Update the account balance weekly and reference the sheet before every trade. The 30 seconds this takes can save you thousands in oversized losses.

The Bottom Line

Position sizing isn't exciting. It won't give you an edge in market direction. But it will keep you in the game long enough for your actual edge to work. The formula is simple: know your account size, set your risk percentage, measure your stop distance, and let the math tell you the lot size. Do this on every single trade, no exceptions.