Glossary
Position Sizing
Risk Management
Position sizing is the calculation that converts a chosen risk amount and stop-loss distance into the correct trade size.
The standard formula is: position size = (account equity x risk percentage) / (stop distance x value per point). Risking 1% of a $10,000 account with a 50-pip stop on EUR/USD gives $100 / (50 x $10 per lot per pip) = 0.2 lots.
Consistent position sizing is what makes a win rate and average reward-to-risk ratio translate into a predictable equity curve. Varying size by conviction reintroduces the variance that sizing rules exist to remove.