Why sizing comes before entry
Position sizing is the process of deciding how large a trade to place so that a loss stays within a limit you set in advance. It is arguably the most important calculation in trading, because it directly controls how much damage any single trade can do.
The right order of operations is to decide how much money you are willing to risk first, then work out the lot size that matches it — not to pick a lot size that feels exciting and discover the risk afterward. Sizing is a deliberate calculation, not a gut feeling.
The building blocks
Three inputs drive the calculation: the amount of money you are willing to risk on the trade, the distance from your entry to your stop-loss in pips, and the value of one pip for the position size you are considering. With these, the lot size follows directly.
The logic is simple: your risk amount equals your stop distance in pips multiplied by the pip value of your position. Rearrange it, and the position size equals your risk amount divided by (stop distance times pip value per lot). Everything hinges on defining the stop distance honestly, based on where the trade idea is actually invalidated.
A full worked example
Suppose you have a €10,000 account and choose to risk 1%, or €100, on a trade. Your analysis places a sensible stop 50 pips away. On the pair in question, one standard lot is worth about €10 per pip, so a mini lot is about €1 per pip and a micro lot about €0.10.
Your maximum loss per lot is 50 pips times the pip value. For a mini lot that is 50 × €1 = €50 of risk. Since you want to risk €100, you can trade two mini lots (2 × €50 = €100). If your stop had been 100 pips away instead, each mini lot would risk €100, so you could trade only one mini lot to keep within your €100 limit.
Why the wider stop means smaller size
Notice the key relationship: as your stop gets wider, your position size must shrink to keep the risk constant. This is the opposite of what many beginners do — they widen the stop to avoid being stopped out but leave the size unchanged, quietly multiplying their risk.
Done properly, position sizing means that a losing trade always costs about the same predictable amount regardless of where the stop sits. That consistency is what lets you survive losing streaks and keep your risk of ruin low. The calculation takes a minute; skipping it is how accounts are lost.