Position sizing for challenges

Three numbers go in:

1. Your risk in dollars. For example 1% of a $25,000 account, which is $250.
2. Your stop distance. How far the price can move against you before your idea is wrong, in the market's own price units.
3. What one lot gains or loses for each unit the price moves. This comes from the lot size.

Then:

Size in lots = risk in dollars ÷ (stop distance × value of a 1-unit move on 1 lot)

The stop goes where the trade idea is wrong, based on the chart. Don't move the stop to fit a size you wanted. Change the size to fit the stop.

A lot is a standard trade size. Here is what one lot is on each market today, and what a price move is worth on it.

Most markets trade from 0.01 lot in steps of 0.01. Bitcoin goes down to 0.0001 lot, Ethereum and BNB to 0.001, and Sui trades from 1 lot in steps of 0.1. The order ticket shows what one lot is on the market you are trading.

You have a $25,000 account and risk 1%, which is $250.

• Say gold is at $4,000. You buy, with a stop at $3,990: a $10 stop.
• On 1 lot (100 oz), a $10 move is $1,000.
• Size = $250 ÷ $1,000 = 0.25 lot.

That trade is worth 0.25 × 100 oz × $4,000 = $100,000. At gold's 1:30 leverage, it sets aside about $3,333 of margin.

You have a $50,000 account and risk 0.5%, which is $250.

• Say EUR/USD is at 1.1600. You buy, with a stop at 1.1575: 25 pips.
• On 1 lot, a pip is $10, so 25 pips is $250.
• Size = $250 ÷ $250 = 1.00 lot.

The trade is worth 100,000 × 1.1600 = $116,000. At 1:100, that is $1,160 of margin. The forex guide has more on pips.

You have a $10,000 account and risk 1%, which is $100.

• Say Bitcoin is at $100,000. You buy, with a stop at $98,500: a $1,500 stop.
• On 1 lot (1 BTC), a $1,500 move is $1,500.
• Size = $100 ÷ $1,500 = 0.06667, which rounds down to the 0.0001 step: 0.0666 lot.

The risk is then 0.0666 × $1,500 = $99.90. The trade is worth $6,660 and, at 1:5, uses $1,332 of margin.

A tight stop means a big size, and a big size needs margin. Margin is the trade's value divided by the market's leverage.

Take the Bitcoin example with a $100 stop instead. To risk $100, you would need 1 lot, worth $100,000. At 1:5, that needs $20,000 of margin, and the account only has $10,000. The ticket won't place it and says there isn't enough margin.

When that happens, the market is telling you the stop is too tight for this account at this risk. Use a wider stop with a smaller size, or risk less. If margin gets low while trades are open, Runtiler closes the biggest losing position at a 50% margin level. See Leverage and margin.

The order ticket in the terminal can take the size in four ways:

• Lots: the size itself, as in the examples above.
• USD: what the trade is worth, its size times the price. Type $6,660 on Bitcoin at $100,000 and you get 0.0666 lot.
• Risk $: what you lose if the stop is hit. You set the stop and the dollar risk, and the size follows the stop to keep that risk. Sizing by risk turns the stop loss on.
• Risk %: the same, as a share of your current balance.

With Risk $ or Risk %, moving the stop changes the size, not the risk. The size is always rounded down to the market's step, so it never risks more than you typed. Until you set a size yourself, the ticket starts at what would risk 0.5% of your balance at your usual stop distance on that market, as far as your margin allows. The ticket also shows the most you can open with your free margin.

Risk % is a share of the balance now, not of the starting size. After a few losses, the same percent is a few dollars less, which slows a losing run down.

The risk the ticket shows is measured from your entry to your stop. A few costs sit outside it:

• The fill. A stop closes at the market once it's touched. In a fast move, or when a closed market reopens past your stop, it fills at the first price, which can be worse.
• Commission. On a Raw account, each side of a trade pays a commission on top of the loss at the stop.
• Overnight fees. A position held through 00:00 UTC pays a fee for each night.

A good habit is to leave a little room for these. If your plan says 1%, the real loss on a bad fill may be a bit more. Spreads, commissions and overnight fees shows the numbers.

1. Choose your risk in percent before you look at the size.
2. Put the stop where the idea is wrong.
3. Work out the size, or let Risk % do it.
4. Check the margin it uses and what's left free.
5. Keep the same risk on every trade, wins and losses alike.

How much to risk in the first place is its own topic: see Risk per trade.