Risk per trade and position sizing

Risk first, then volume

Most traders choose a volume first and only then see how much they could lose. Professionals work the other way round: first they decide the maximum percentage of the account they will risk on this trade, then they calculate the volume from it.

A common starting figure is one percent of the account per trade.

The formula

Volume (lots) = risk amount ÷ (stop distance in pips × pip value for one lot)

An example

• Balance: ten thousand dollars
• Risk: one percent, which is one hundred dollars
• Stop: twenty-five pips on EUR/USD
• Pip value for one standard lot of EUR/USD: about ten dollars

Volume = one hundred ÷ (twenty-five × ten) = four tenths of a lot

If you set the stop at fifty pips, the volume halves to two tenths of a lot. A wider stop means a smaller volume, not more risk.

Why one percent?

At one percent risk, ten losing trades in a row take about ten percent of the account: painful but recoverable. At ten percent risk, the same ten losses in a row wipe out about two thirds of the account.

For quick calculations you can use the PAMM Iran calculators.