How to calculate lot size (position sizing) with an example

Position sizing decides how large your trade is so that, if your stop-loss is hit, you lose only a small, pre-decided amount. It is the single most powerful risk tool you have, and getting it right matters far more than being right about direction.

The logic runs backwards from most beginners' instincts. You do not pick a lot size and hope; you decide how much you are willing to lose, decide where your stop goes, and let those two numbers tell you the correct size.

You need: (a) how much money you are willing to risk on the trade — often a small percentage of your account, such as 1%; (b) your stop-loss distance in pips — how far the price would have to move against you to hit your stop; and (c) the value of one pip per lot for the instrument you are trading.

The pip value depends on the instrument and your account currency. Your platform or your broker's specification shows it, and MetaTrader has a built-in trading calculator; you do not have to memorise it.

Step 1: Find your risk amount. On a €1,000 account risking 1%, that is €10.

Step 2: Decide your stop distance in pips. Say your plan puts the stop 20 pips away.

Step 3: Work out risk per pip: divide your risk amount by your stop distance. €10 ÷ 20 pips = €0.50 per pip. That is the most each pip of movement may cost you.

Step 4: Convert to lots using the pip value. On a standard forex pair, one full lot is roughly €10 per pip, and 0.01 lots (a micro lot) is roughly €0.10 per pip. To get €0.50 per pip you need about 0.05 lots.

Step 5: Round down, never up. If the exact figure is 0.053, use 0.05. Rounding up quietly increases your risk beyond the amount you decided on.

MetaTrader includes a trading calculator, and most brokers offer a position-size calculator on their website. Use one to confirm your hand calculation until the numbers feel familiar. It is easy to slip a decimal place, and a slipped decimal can turn a 1% risk into a 10% risk.

Whatever you use, the discipline is the same every single time: set the risk, set the stop, then size the trade to fit. Never size the trade to fit the profit you are hoping for.

Correct sizing caps your intended loss, but the actual loss can be larger if the price gaps past your stop, and pip values shift with exchange rates on cross pairs. Treat your calculation as a careful estimate, not a hard ceiling.

Beginners almost universally trade too big. If in doubt, size smaller. A position that feels almost too small to bother with is usually about right while you are learning.