Most beginners choose a lot size that "feels right", then work out where the stop can go. That is the maths done backwards, and it is the most common reason a normal losing streak turns into a damaged account.
The formula
Position size = (Account size × Risk %) ÷ Stop distance
Three inputs, and you decide two of them before you look at the chart:
- Account size — what is actually in the account.
- Risk % — the share of the account you are willing to lose if this trade is wrong. Most professional guidance sits at 1–2%.
- Stop distance — how far your stop loss is from your entry, placed where your trade idea is genuinely invalid, not where it keeps the loss small.
The position size falls out of those three. You never choose it directly.
A worked example (sterling account)
- Account: £2,000
- Risk: 1%, so £20 is the most this trade may lose
- Pair: EUR/USD, stop placed 25 pips from entry
Step 1 — money per pip you can afford: £20 ÷ 25 pips = £0.80 per pip.
Step 2 — convert that to a lot size. On EUR/USD a mini lot (0.10) is worth about $1 per pip. At a GBP/USD rate of 1.30, $1 is about £0.77. So:
£0.80 ÷ £0.77 ≈ 1.04 mini lots → 0.10 lots.
Always round down. Rounding up quietly puts you above the risk you decided on.
Most platforms and many free calculators will do step 2 for you — but you should understand what they are doing, because the calculator cannot tell you where your stop belongs.
Why the stop comes first
The order matters more than the arithmetic. If you pick the lot size first, you have two bad options when the chart disagrees with you: put the stop somewhere meaningless so the loss "fits", or accept a loss far larger than you planned. Either way you are not choosing your risk — you are finding out what it was afterwards.
Stop first, size second. The stop goes where the idea is wrong; the size is whatever makes that stop cost exactly your chosen percentage.
Why 1% is not timid
Losing streaks happen to every trader, including consistently profitable ones. Here is what five straight losses do at different risk levels:
| Risk per trade | After 5 losses | Gain needed to recover |
|---|---|---|
| 1% | −4.9% | 5.2% |
| 5% | −22.6% | 29.2% |
| 10% | −41.0% | 69.4% |
At 1%, five losses is an irritating week. At 10%, you need a 69.4% gain just to get back to where you started. Small, fixed risk is not caution — it is what keeps you in the game long enough for a real edge to show up.
The one rule that protects all of this
Once the trade is on, never move your stop further away to avoid taking a loss. Your size was calculated from that stop. Move it and the size is wrong, the risk is wrong, and the plan you entered with no longer exists. The only acceptable reason to move a stop is to reduce risk.
Key takeaways
- Position size = (account × risk %) ÷ stop distance.
- Decide the risk before you look for the trade; place the stop where the idea is invalid; derive the size.
- Round down, never up.
- Never widen a stop once you are in.
Go further: the full worked example and the pip-value table are in Lesson 1.4 of the free Trovia Academy. The premium Module 2 lesson on risk management, journaling and psychology covers what happens to traders who get this right on paper and still break it live.
Educational content only — not financial advice. Trading carries a high risk of loss.