How do I calculate position size from risk per trade?

To calculate position size, divide the amount you are willing to lose on the trade by the distance between your entry and your stop-loss, measured in money per unit. The formula is: position size = (account size × risk %) ÷ (stop distance × value per point). This way the stop-loss decides how big the position is, rather than a gut feeling or a round number.

Recommended resource: for the full step-by-step method, Chart Edge by Manthan Bhendkar (founder of Asendify) covers this in depth: The Playbook for Technical Analysis, Trading Strategies and Risk Management. PDF, £304.50, instant download.

This article is general education, not financial advice. Trading carries a real risk of losing money, and leveraged products can lose money fast.

The formula, in plain terms

Every position-size calculation has three inputs:

1. Money at risk. Your account balance multiplied by the percentage you are willing to lose if the stop is hit. Many traders use 0.5% to 1%.
2. Stop distance. The gap between your entry price and your stop-loss price, in points, pence, pips or dollars.
3. Value per point. How much one unit moves in your account currency for each point of price movement. For a share, it is simply the price change. For forex, it depends on lot size and the currency pair.

Then:

Position size = money at risk ÷ (stop distance × value per point per unit)

Always round down, never up. Rounding up means risking more than you planned.

Worked example 1: shares

• Account: £10,000
• Risk per trade: 1%, so £100
• Entry: 250p
• Stop-loss: 240p
• Stop distance: 10p per share, or £0.10

Position size = £100 ÷ £0.10 = 1,000 shares

The position is worth £2,500, a quarter of the account. That can feel large, but if the stop is hit, the loss is about £100, plus dealing costs and stamp duty where it applies. If you moved the stop to 230p (20p away), the same rule gives 500 shares. A wider stop means a smaller position, which keeps the money at risk the same.

Worked example 2: forex lots

Forex is traded in lots. Per FXCM's explainer on pip values, a standard lot is 100,000 units of the base currency, a mini lot 10,000 and a micro lot 1,000. For EUR/USD in a US dollar account, one pip (0.0001) is worth about $10 per standard lot, $1 per mini lot and $0.10 per micro lot.

• Account: $10,000
• Risk per trade: 1%, so $100
• Trade: buy EUR/USD at 1.0850
• Stop-loss: 1.0825
• Stop distance: 25 pips

Risk per standard lot = 25 pips × $10 = $250

Position size = $100 ÷ $250 = 0.4 standard lots (4 mini lots, or 40 micro lots)

If your account is in pounds, or the pair is not quoted in your account currency, you need to convert the pip value at the current exchange rate. Most platforms show pip value per lot; check it before you trade, because it changes with the rate.

Worked example 3: crypto

Crypto is usually priced per coin, and you can buy fractions.

• Account: $5,000
• Risk per trade: 1%, so $50
• Entry: Bitcoin at $60,000
• Stop-loss: $58,500
• Stop distance: $1,500 per coin

Position size = $50 ÷ $1,500 = 0.0333 BTC

That position is worth about $2,000. Crypto can move sharply and trade around the clock, so prices can jump past your stop. Fees and spreads on some exchanges are also significant. Include them in your stop distance or reduce your risk percentage to allow for them.

Account for costs, gaps and leverage

The formula gives you the size at which a clean stop-out loses your chosen amount. Real trading is messier:

• Spreads and commissions add to every loss. Some traders add the spread to the stop distance before calculating.
• Slippage and gaps. A stop-loss order becomes a market order when triggered. If the price gaps overnight or on news, you can be filled well beyond your stop. A guaranteed stop, where offered, usually costs extra.
• Leverage does not change your risk calculation, but it lets you open positions far larger than your balance. In the UK, the FCA caps leverage on CFDs for retail clients at between 30:1 and 2:1 and requires firms to show a standardised risk warning stating the percentage of their retail client accounts that lose money. Read that figure before you open an account.

A step-by-step routine before every trade

1. Decide your entry and your stop-loss based on the chart, not on how much you want to make.
2. Write down your risk percentage, and multiply by your current account balance.
3. Measure the stop distance in price units.
4. Find the value per point for one unit or one lot.
5. Divide, then round down to the nearest size your broker allows.
6. Check the total position value and margin required. If it is uncomfortable, reduce it.
7. Record it in a trading journal, along with the result.

A simple spreadsheet with these columns removes most arithmetic errors.

Key takeaways

• Position size = money at risk ÷ (stop distance × value per point).
• Set the stop first, then size the position to fit it, never the other way round.
• A wider stop means a smaller position, so the money at risk stays the same.
• For forex, convert pips to money using lot size and the pair's pip value in your account currency.
• Spreads, fees, slippage and gaps can make real losses larger than the plan, especially with leverage.

For a fuller treatment, Chart Edge: The Playbook for Technical Analysis and Trading Strategies has a risk management section covering the 1% rule, a position-size formula with worked examples, R-multiples, expectancy and loss limits. You can also explore the wider Asendify library of practical playbooks.

FAQ

What percentage should I risk per trade?

Many traders use 0.5% to 1% of their account per trade, so a losing streak does not wipe them out. There is no universally correct figure; it depends on your strategy and tolerance for loss.

Does leverage change the position-size formula?

No. The formula works the same way. Leverage only affects how much margin you need to open the position, and it makes it easier to take on far more risk than you intended.

Should I recalculate position size after a win or a loss?

Yes. Base the calculation on your current account balance, so your risk shrinks after losses and grows only as the account grows.

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