How Proper Position Sizing Can Mean More Profits

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How to Determine Proper Position Size When Trading – Any Trade, Any Market

A crucial element of trading success is taking the proper position size on each trade. Position size is how many shares you take on a stock trade, how many contracts you take on a futures trade, or how many lots you trade in the forex market. Position size is not randomly chosen, nor based on how convinced you are a trade will work out. Rather, position size is determined by a simple mathematical formula which helps control risk and maximize returns on the risk taken.

There are three steps to determining the proper position size, and it works for any market. We will then look at couple alternative position sizing techniques for specific circustances.

Position Sizing Strategy Step 1 – Determine Account Risk

No matter if your account is large or small—$1000 or $500,000–a single trade shouldn’t put more than 1% of your trading capital at risk. On a $1000 account, don’t risk more than $10 on a trade, which means you’ll need to trade a micro forex account. If your account is $500,000, you can risk up to $5,000 per trade.

While it’s not recommended, if you risk up to 2% of your account per trade, then on a $25,000 account you can risk $500 per trade. On a $50,000 you can risk $1000, and so on.

Why only 1% risk? Even great traders can experience a string of losses. But if you keep risk below 1% per trade, even if you lose 10 trades in a row (should be very rare!) you still have almost all your capital. If you had risked 10% of your account on each trade, and lost 10 in a row, you’d be a wiped out. Also, even with risking 1% (or less) on each trade you can still make great returns.

Only risking 1% also helps avoid the disaster scenario where you end losing much more than anticipated. A stop loss order doesn’t guarantee an exit at the price we specify. In a volatile move, or an overnight gap in price, we could lose substantially more than 1% (called slippage). If we only risk 1%, usually those devastating moves only result in a several percentage drop in equity which is easy to recover. Had you risked 10% on the trade though, such a move could wipe up half or nearly all your capital.

If your account is larger, you may wish to risk less than 1%. In that case, choose a fixed dollar amount that is less than 1% and use that as your account risk. A $1 million dollar account can risk $10,000 per trade, but you may not want to risk that much (not to mention, liquidity becomes an issue with bigger position sizes). Instead, you may opt to only risk $1,000, for example. $1,000 is less than 1% so it’s a suitable figure, and is the account risk ($) which you’d use in step three.

What is 1% of your account, in dollars? That’s your account risk, and it’s how much you can risk on one trade.

Position Sizing Strategy Step 2 – Determine Trade Risk

To determine our positions size we must set a stop loss level. A stop loss is an order that closes out the trade if the price moves against us and reaches a specific price. This order is placed at a logical spot which is out of range of normal market movements, and if hit, let’s us know we’re wrong about the direction of the market (at least for the moment).

Figure 1 shows a trade example in the EURUSD. The price climbs into a former resistance area, but then stalls out, moving sideways then dropping. This triggers a short trade (a method covered in the Forex Strategies Guide eBook). The entry price of the short is 1.14665 and we place a stop loss at 1.15045. This results in a trade risk of 38 pips.

Figure 1. EURUSD with Entry, Stop loss and Trade Risk

You’ll need the trade risk in order to move onto the next step in determining proper position size. For forex, we measure trade risk in pips, in the stock market in cents or dollars, and in the futures market we measure it in ticks or points.

Assume you buy a stock at $9.50, and place a stop loss at $9.40. The trade risk is $0.10.

If trading a futures contract, how many ticks or points are there between the entry and exit price? If trading the E-mini S&P 500 (ES), and you buy at 1220 and place a stop loss at 1210, that’s a 10 point (or 40 tick) trade risk.

Position Sizing Strategy Step 3 – Determine Proper Position Size

You now have all the information you need to calculate the proper positions size for any trade. You know your account risk, and you know your trade risk. Since trade risk will fluctuate on each trade, and your account risk will also fluctuate over time as your balance changes, your position sizes will be different from one trade to the next, usually.

To calculate position size, use the following formula for the respective market:

Stocks: Account Risk ($) / Trade Risk ($) = Position size in shares

Assume you have a $100,000 account, which means you can risk $1000 per trade (1%). You buy a stock at $100 and a place a stop loss at $98, making your trade risk $2.

Stocks: $1000 / $2 = 500 shares.

500 shares is your ideal position size for this trade, because based on your entry and stop loss you are risking exactly 1% of your account. The trade costs you 500 shares x $100 = $50,000. You have enough money in the account to make this trade, so leverage is not required.

Forex: Account Risk ($) / (Trade Risk in pips x Pip Value) = Position size in lots

Assume you have a $5,000 account, which means you can risk $50 per trade. You buy the EURUSD at 1.1500 and place a stop loss at 1.1420, making your trade risk 80 pips. To complete the formula you’ll need to know the pip value of all pairs you trade. For the EURUSD it is always the same if you have a USD account: $0.10 for a micro lot, $1 for a mini lot, and $10 for a standard lot. For some other pairs it is different though. See Calculating Pip Value in Different Forex Pairs and Account Currencies.

Forex: $50 / (80 pips x $0.1) = $50 / $8 = 6.25 micro lots. Micro lots are the smallest trading lot with most brokers, so we can’t buy a partial lot. Therefore, we would round our position size down to 6 micro lots.

We know it is 6 micro lots because we used the pip value of a micro lot into the formula. To get the position size in mini lots, input $1 for the pip value instead. Doing so produces a position size of 0.625 mini lots, which is the same as 6.25 micro lots. The trade costs you $6,000 to make though (the value of 6 micro lots). To take the trade requires leverage.

Futures: Account Risk ($) / (Trade Risk in ticks x Tick Value) = Position size in contracts

Assume you have a $13,000 account, which means you can risk $130 per trade. You buy an E-mini S&P 500 (ES) contract at 1210.00 and place a stop loss at 1207.50, putting 10 ticks at risk (there are 4 ticks per point). You need to know the tick value of the contract you’re trading in order to determine the proper position size. For ES, each tick is worth $12.50.

Futures: $130 / (10 ticks x $12.50) = $130 / $125 = 1.04, or 1 contract. Holding a one contract position only costs about $500 in intraday margin (day trading) with many US brokers. If you hold overnight you’ll be subject to initial and maintenance margin. There is enough funds in the account to day trade this position or hold it overnight.

The Equal Dollar Amount Approach

I use another position sizing technique, typically in non-margined accounts like retirement accounts, etc.. Typically I am only trading stocks in these accounts.

In these types of accounts, I tend to accumulate longer-term trades, lasting weeks to months, or even years. Therefore, I don’t want to put all my capital in only a handful of trades, which often happens if using the 3-step approach discussed above.

Instead, I divide the account by 10 or 20, thus putting 5% or 10% in each stock I decide to trade. On a $200,000 account, I may put $20,000 into each stock. If there are a lot of possible trades out there, I may diversify a bit more and cut my account up into 20 positions, putting $10,000 in each.

Let’s assume I am putting 5% of my capital into each stock. On $200,000 account, that means buying $10,000 worth of stock on each trade. That doesn’t mean I am willing to lose all $10,000. That is just how much stock I buy. If the stock price is $25, I can buy 400 shares. If the stock price is $100, I buy 100 shares, and so on.

On each position, I still put a stop loss and control my risk. In order to take the trade, I need to reasonably expect that I can make at least make 2:1 on my risk. Typically I will want 3:1 or 4:1.

This approach is simpler for many people to understand. Buy a fixed amount of stock on each trade, and then set the stop loss wherever it should be for that trade. Make sure the profit potential justifies the risk. This is what my Stock Swing Trading Course is all about.

Equal Position Approach

I only use the equal position approach when day trading the same asset for extended periods of time. Whether it is a stock, forex pair, or futures contract, if I am trading it all the time I often use a default position size. Say 1000 or 2000 shares in a stock, or 10 contracts/lots.

This default amount, whatever you choose, shouldn’t expose your account to a more than 1% loss on each trade. While the odd trade may produce a bit more risk (and profit) than average, another trade will likely produce less, so over many trades it evens out.

With lots to think about in a fast moving market, a default position size is one less thing to worry about.

If it is a very volatile day, you will want to reduce your default size. If it is a very quiet day, you may want to up it slightly (or not trade). Therefore, a default position size doesn’t mean you don’t think about position size anymore. You still have to, you just don’t need to adjust it every trade.

Some assets work better with a default position size than others. Assets that tend to have similar volatility each day work well with a default position size. If it seems like you stop loss levels are very different on each trade, then a default position size won’t work well.

Proper Position Sizing Strategy – Final Word

The three-step method gives you the ideal position size for any market and any trade. When day trading you’ll need to quickly calculate your position size as you spot trades. Planning ahead will help in this regard, as discussed in How to Day Trade Forex in 2 Hours or Less. With a bit of practice, even when making trades on the fly, you should be able to nail the position size on your day trades every time. If swing trading, you have more time, so there’s no excuse for taking the wrong position size.

The method works for swing traders and day traders. Depending on which market you trade, master the formula. If you trade forex or futures, know your tick and pip values (or have them written down).

The equal dollar amount method works great for investor or swing traders in unleveraged accounts. There is less math involved because we always know how much stock (in dollars) we can buy. Then, we just set our stop loss and target on each trade.

Equal position size works for day traders who know the asset they are trading very well, and find that the distance to the stop loss on most of their trades is quite similar.

All these methods are work, although you may find one works better for your particular circumstance.

If you want to learn about day trading (or swing trading) successfully, check out the Forex Strategies Guide for Day Swing Traders eBook.
300+ Pages and more than 20+ strategies combined with trading psychology and a proven 5 step method for becoming a winning trader.

By Cory Mitchell, CMT @corymitc

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19 thoughts on “ How to Determine Proper Position Size When Trading – Any Trade, Any Market ”

Great article and very informative. I have been looking for the right position sizing for Futures trading and you have answered all. Thanks much. Do you have any blog on futures trading as well.

Thanks for the feedback. I primarily trade stocks and forex, so I don’t produce much futures content.

I have some questions that i can’t figure it out.
the question is in example : I have $1000000 and i will buy follow signal. Anyway i calculate trading size already. in the Bull market After the signal come out more and more my cash is running out untill my cash is running low and signal still come out I have 2 choices 1. Sell another stock(But still uptrend), 2.wait for the stock in my portfolio goiong to TargetPrice to sell and get in the new signal.

Please kindly advice

Hi Cory – for day trading when the market is less volatile and your SL and TP could be much smaller, for example 2 pip SL and 4 pip TP. Calculating the correct lot size for even a small account can result in large lot sizes. A $25 risk on a 2 pip SL results in a 1.25 lot or $125,000 for EURUUSD. In your opinion does using large lot sizes on low volatility like the example make it any more risky than a 10 pip SL at $25 on a more volatile trade that results in a .25 lot size or $25,000 for EURUUSD?

Yeah, i would say cap leverage at 20:1, and ideally be less than that. Any easy way to calculate this is to just always assume at least a 5 pip stop loss (and calculate position size based on that) even if you actually use a 2 or 3 pip stop.

So a $2000 account, can risk $20. Assume at least a 5 pip stop for the position size. So that means a possible trade of 4 mini lots (40,000), which means the trade utilizes 20:1 leverage.

The reason we want to cap our position size is in case of a surprise move (Trump says something and a pair that wasn’t really moving gaps 100 pips, creating a loss 20 times bigger than expected. Discussed here: http://vantagepointtrading.com/archives/20207. This doesn’t happen often outside of scheduled news releases (which we avoid when day trading), but could (and have) happened, so we gotta take some precautions to avoid that one catastrophic trade.

Also, to make it simple, you can also just pick a size a trade it all the time. Only if it is A LOT more volatile or sedate would you change it. For example, on a $2000 account you may opt to always trade 2 mini lots. This way, as long as the SL is less than 10 pips, you know you are risking less than 1%. Or maybe you trade 3 lots if most of your SLs end up being 6 pips (for this example). Since account balance doesn’t move a lot each day, typically you can trade the same position size for weeks, and make minor adjustments for increases/decreases in account balance and volatility ever few weeks.

All are viable methods, but yes, we want to cap our position size at some point.

Hi, Cory. Great information. Thank you for taking the time to write such informative articles and responses. Your generosity for aspiring traders is very commendable. Thanks to your articles, I’ve been able to realize many of my hangups.

Perhaps you, or one of your regular commenters, could help me with some of these questions.

1 – Assuming these conditions – a $50,000 account for trading stocks, 4:1 leverage ($200K) intraday, and opting to risk 1% of account ($500) per trade, with a chosen, fixed stop loss of $.10 from entry point, for any stock priced within a range to obtain 5000 shares (apprx. $40 per share or less).

If you were trading stocks intraday within these parameters, what fixed stop loss amount would you think is ideal? (e.g. $.10, $.12, $.15, $.20), again, assuming a stock priced near $40. Also assuming one is picking solid entries in first place of course (another topic), and not at random.

2 – I realize fixed stop loss amounts will vary based on share price ($.20 fluctuation for a $40 stock (.50%) is much more frequent/expected than $.20 fluctuation for a $4 stock (5%)).

Is there a fluctuation % you typically base your fixed stop loss amounts from when trading stocks intraday? (e.g. .3% of $40 stock = $.12, .3% of $67 stock = $.20) I’m thinking a .25-.30% move against a chosen entry is generally a pretty good indicator that a person’s assumption is wrong, with exceptions depending on the setup entry and timeframe.

3 – What is your opinion and personal preference on pyramiding, as a means to mitigate higher likelihood of stops getting hit, particularly in intraday trading and fast moving markets?

Additional Q – though unrelated to position sizing/stop losses.

4 – Based on your experience, do you think it’s possible to be successful intraday trading only 1-2 stocks in same sector for a long period of time (months or years), while ignoring all else, to include daily movements of the broader market (S&P 500), news, analyst opinions, etc.? And besides being merely possible, do you think such an approach is advisable? or would you say it is better to monitor a larger handful of stocks as well as the broader market intraday.

Thanks for you feedback John.

1. It depends on the volatility of the day and the stock. For a trade to take place, I typically wait for a pullback within a trend, and then for the price to consolidate during that pullback. Discussed in How to Day Trade Stocks: http://vantagepointtrading.com/archives/16708. I then enter when the price breaks out of the consolidation (in trending direction) and place a stop loss on the other side of the consolidation (occasionally I will enter during the consolidation). So my stop loss is based on the size of the consolidation. Typically these will be approximately the same each day for the same stocks, but may need to be adjusted by a penny or two.

2. I just use the method above. I am expecting the price to move in my favor after the consolidation breakout, so if it doesn’t, I will be stopped out. With this method I have no problem winning more than 60% of the time (and winners are bigger than losers), so no reason to get more complicated than that.

3. I typically do not pyramid. I would rather get in and out multiple times if there is a strong trend (assuming all opportunities provide the setup I am looking for and offer a favorable reward:risk ratio), locking in profits along the way.

4. For day trading, I think traders should focus on only a small number of stocks. I traded only SPY for a couple years (a good one for pretty much any time or any conditions). I traded only MCD for about a year. I traded only LULU for a long time. Now I mostly trade forex and I only day trade the EURUSD. Each week I publish a list of the most consistently volatile stocks. In that article, I recommend only picking 1 or 2 stocks and sticking with them (if you like volatile stocks, if not, find a stock or ETF that suits your trading style). Typically most fo the same stocks are on the list every week, so absolutely it is possible to trade only one stock…and its conditions can be favorable (for your strategy) for months or years. Then occasionally, you may need to make a switch, but not often. Only focus on the stock being traded, and not outside data (except be aware when news reports come out, and step aside for those). Focus on implementing your strategy in that one stock, and there is no reason to look at other data or input. This keeps trading very simple, which is good. When it is simple, it is easier to focus, and thus easier to trade better.

For swing trading I run stock screeners to find viable trades that meet certain criteria. In the forex market, I just have a list of close to 50 pairs that I scan through each day/week (depending on how often want to trade). I know exactly what I am looking for, so I can find and set my swing trade orders in less 20 minutes a night. So in swing trading I trade lots of different things, but for day trading I focus on just one stock/forex pair/futures contract.

Cory, thank you for the thorough response. I like your “keep it simple” approach. “Less is more” seems very applicable to trading.

Followup Q based on your response, do you ever make attempts to catch reversals at support/resistance points? Or just primarily focus on spotting/entering an existing trends during pullback / consolidation / continuation of trend?

SMB Training Blog

You make a great trade, but then lament that your trading position was too small.

You take a loss on a trade, and then grieve that your trading position was too big.

If you could just get your position sizing right, then you could start making significant profits. Then you could have a realistic chance to become a CPT- Consistently Profitable Trader. Or then you could have a solid chance to achieve our trading goals.

But you do not know how to solve this problem.

Let’s offer a guide to do so for you from top to bottom.

1. Build your PlayBook

We have to start here because we MUST know what trades we will take. Give trades a name. Develop a trading strategy for each setup. Spend trading sessions taking trades in your PlayBook. Your PlayBook is your trading business.

If you are not familiar with how to build a PlayBook, you can see how I do this here.

2. Identify your A+ setups

What are your best trades? What trades in your PlayBook deserve the most risk? You should know the essential variables of these trades and how to spot them daily. And you ought to take them with more risk when they do visit. But first you need to identify them for your trading.

3. Develop B trades and feeler trades

There will be trades you want to take that are not A+ trades. You have edge in these trades. They just do not line up perfectly to be an A+ trade. We call them B trades. Take them. We just take them with less risk.

Then there will be trades that look like they are about to set up. But you are not quite confident that the trade is there. So you nibble. You get into the trade and watch it. Having some size helps you watch the trade better. We call this a Feeler trade. These trades get the least amount of risk.

4. Determine you max daily loss

If you are an intraday trader, determine the max loss you will take during a trading session. When just starting as a trader, keep this max loss low. Earn the right to take on more risk.

If you are a swing trader, determine your max loss for a trade. 2 percent or your capital is a common max risk for swing trades.

5. Think in percentages

Okay so now we have determined our max daily loss. Great step forward. Let’s say it is $1,000. Risk a percentage of this max loss on each trade.

For an A+ trade you might risk 30 percent of your max daily loss. So you could risk $300 on a trade.

For a B trade you might risk 15 percent of your max daily loss.

For a Feeler trade you might risk 5 percent of your max daily loss.

Thinking in percentages helps you scale easily from here. With success, you continue doing exactly what you were doing, risk a percentage of your max daily risk on each trade. All you do is increase the amount you are willing to risk.

6. It may take a few times to be right

When you spot an A+ trade, it may take you a few times to catch the trade. You might give yourself three tries to catch the trade. So factor that into your risk. If I think it may take 3 tries to catch an A+ trade, then I will risk 10 percent on each trade, and not 30 percent. I want to stay in the game until I catch the trade. If I risk 30 percent each time, then I may get stopped out, but still see an A+ trade present. But since I am stopped out, I cannot take another attempt at the A+ trade.

7. Size up after success

After a significant period of success, increase your risk by 20 percent. Rinse and repeat, continually.

8. Proof of concept

When trying a new strategy, to expand your PlayBook, keep your risk low. Earn the right to take on more risk. Prove that you can trade the new strategy with edge. Keep risk to 5 percent of your max daily loss for such experimentation.

9. Push yourself outside of your comfort zone

Your risk should make you feel uncomfortable in your A+ trades, but not too large that a loss would set you back. If you are comfortable in an A+ trade, then you are not big enough. Not being big enough in your A+ trades, is too risky.

10. Slowly and systematically increase your risk

Give it time. We have former $4,000-a-month traders, who now are seven-figure traders. They have slowly and systematically increased their risk to reach their present success levels.

11. Don’t be super rigid with your risk rules

Your risk rules are there as a guide. Do not exceed your max daily risk. Ever! But, trading is a fluid activity, where plans are amended on the fly. Strictly adhering to risk rules, can cause you to miss a trade. You could be there trying to figure out the risk, while the trade passes you by. And there will be times where you misdiagnosis the risk on a trade. It is more volatile than you thought and you will lose more. Trying to be perfect and super rigid can make things worse.

12. A+ trades will fall in your lap

The best trades just come to you. You observe. You spot a huge opportunity. You wait for confirmation. You see it. And then you can just pounce. Understanding this ought to give you the confidence not to force lesser trades. This ought to accentuate the importance of saving risk for the best opportunities.

13. Risk changes during the trade

A Feeler trade can turn into an A+ trade. An A+ trade can turn into a Feeler trade, if the stock is not acting well. Adjust your risk as you gather this new information.

14. There is someone bigger and better than you so keep pushing your size responsibly

As long as liquidity allows, keep pushing yourself in your best trades. Recently, some traders on our desk had a six-figure day and were feeling great about their success. That was until they learned that another prop trader had made over 500k during the same session, and then felt like pikers.

Keep pushing! How good can you be? How big, responsibly, can you trade that setup?

Below is a video of an experience trader, chatting with our new hires, on how he determines position sizing. I encourage you to watch and listen to this professional prop trader on sizing.

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Learn about position sizing

Dear members every strategy becomes failed without proper position sizing because it is very important that we do proper risk management in our each position without risk management our capital is on dangerous condition we cannot get success in market without proper position sizing because without position sizing we became greedy and greed gives us only loss in market we should that we do work with money management it means we should have ability to manage the risk and gain the money with proper skills in market if we have not ability to manage the risk it means we are looser in market we should do work with confidence we did not become over confident we should cover each and every aspect of our trading we should follow all rules of a successful trading then we can earn profit from market kindly share your opinions about my thread

The following 4 users say Thank You to PriceAction for this useful post.

We do learn every thing related to forex trading learning is the key of success and hard working as well because to learn we need to work hard to gather data from many ways like mt5 forum google searching or asking from a senior trader.

The following 3 users say Thank You to Maani for this useful post.

The forex business is successful only in those people who keep lot size by looking at their account before opening their trade. Because they have knowledge and they know that if we keep more notes then when the rain comes it will be very tight If you do any business, when the weather is bad, you cannot do business. But forex is that white business, wherever you are sitting and whatever the weather, you can attack forex business. And you can also earn great profit by opening successful trade

We do learning about every thing related to forex learning is the key to success for the forex traders.learn a proper knowledge and experience are the most important element in the forex trading business.

Yes, learning in Forex was very important for us trader is successful only when he works very hard in Forex and learning Forex. For success, the trader needs to learn a lot about the market and get an idea of ​​the market movement. We have to work very hard to get profit from market.

To stay safe in Forex trading we need to manege the lot size we use in trading. it is the basic thing which every trader must know that risk management is very important in trading it is right that you cannot afford to think you invested wrong after you invested one should take a good look of the situation before making any trades.

The following 3 users say Thank You to rockstar125 for this useful post.

Risk management is very important in trading. Analysis for risk will make traders have clear understanding for risk and return they can make at each trade they take and they can relieve it so as to rise profit in trade.

Those who manage the lot size gets the real benefits of trading. the risk analysis is very important for every trader and many traders specially the newbies doesn’t take care of the risk analysis. As a result they loose their capital by opening trades in Forex. learn risk analysis in order to achieve profit.

Yes we must try to learn Forex trading is a craft that demands a certain level of discipline. Not only do you have to stick to a set of trading rules, you also have to be able to keep your eyes on the prize at all times. This is what seasoned traders refer to as self-discipline. And if you guys have time to work on it and watch out for it, then you can work backwards,so be a part of successful traders.

The Following User Says Thank You to bhai001 For This Useful Post:

When you learn about the market institute in Forex trading business can you achieve your target and you have to learn availability in Forex trading support your birthday per that one is very important cases in for exam motivation about it is enjoy this is never measured with planning and all your favourite is related to marketing

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Using forex position size as a proper money management technique.

How to decide on a proper forex position size.

A successful traders strength to make money is sometimes misinterpreted with the fact that most trades are going to workout. In fact, an abundance of successful traders experience loses frequently.

Successful traders know that money management is an essential attribute of forex trading.

If this is the case, why don’t more traders establish a concrete money management plan?

The key to become consistently profitable lies in the solution of money management and your forex position sizing strategy.

A prevailing method: The Elder Method

Dr Alexander Elder, born in St petersburg, Russia and raised in Estonia wrote an influential book “Come into my trading room” in which he states:

A money management (position size) should be based on 2% of trading capital available. You can determine your entry price and your stop loss level. The difference between these two prices is your risk per trade. You can then calculate how much you can risk as long as it is not more than 2% of your total trading account balance.

There are however detractors to this method:

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Many traders claim that if you start with $10,000 and your drawn down is $5,000 while using a fixed percentage method, it will take you more time to regain the lost amount because you began risking 2% per trade which was $200, but at the $5,000 draw-down point, your only risking $100 per trade, so even if you have a good winning streak, your capital is recovering at half the rate.

The leverage concern.

Leverage is the ability to obtain a large amount of money using a small, disproportionate amount of your own money and borrowing the rest.

Leverage is capable of increasing your profits, but can be catastrophic if not used correctly because it can quickly deplete your account.

Margin

Margin is the amount of money needed to be deposited by your broker so that a position can be opened in a trade.

In forex, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1. You’re now controlling $100,000 with $1,000

Risk too much on each trade, and you can deplete your account in a hurry with just a few losing trades. Risk too little and your account won’t grow. Use the formula to make sure you have the ideal position size for your account size and the trade you’re taking.

Simple rules to follow for forex position sizing

  • Cut your losing trades short.
  • Let your winning trades run.
  • Never risk too much on a single trade.
  • Size your positions according to the volatility of what you are trading.

Whatever the case maybe, understanding forex position size, money management, and leverage function is one of the major keys that will take your trading to the next level.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

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The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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