Most failed evaluations are not failures of analysis. They are failures of arithmetic — a trade sized by habit instead of by risk, on a day when the stop happened to be wide.
Lot size is the one calculation you can get exactly right every single time, before you enter. Here is the whole method.
The formula
Lots = cash risk ÷ (stop distance in pips × pip value per lot)
Three inputs, all known before the trade exists:
- Cash risk — your balance multiplied by your risk percentage. On a $50,000 account risking 0.5%, that is $250.
- Stop distance — the number of pips from entry to where your idea is wrong. It comes from the chart, never from how much you want to risk.
- Pip value per lot — a property of the instrument. On most FX pairs quoted against the dollar, one standard lot is $10 per pip.
Worked example: EUR/USD
A $50,000 account, 0.5% risk, and a setup that invalidates 25 pips away.
- Cash risk: $50,000 × 0.5% = $250
- Pip risk: 25 pips × $10 per pip per lot = $250 per lot
- Lots: $250 ÷ $250 = 1.00 lot
Now the same account and the same risk on a wider setup — 60 pips.
- Cash risk: $250
- Pip risk: 60 × $10 = $600 per lot
- Lots: $250 ÷ $600 = 0.41 lots
Different sizes, identical loss if you are wrong. That is the entire purpose of the calculation. A trader using one lot on both trades risked $250 on the first and $600 on the second without deciding to.
Gold and indices are not the same
Outside FX, the broker defines the contract, so never reuse an FX figure.
- Gold (XAU/USD) — one lot is usually 100 ounces, so a $1 move is $100 and each cent is $1.
- Indices and crypto CFDs — quoted per point, and the value per point differs between brokers.
In MT5, right-click the symbol in Market Watch and open Specification. Read Contract size, Tick size and Tick value together. Then confirm on a micro position before you size a real one.
Sizing against a daily loss limit
Position sizing on a funded account has a second constraint: the daily floor. Work backwards from it.
| Daily limit | Risk per trade | Full losses before the day locks |
|---|---|---|
| 3% | 1.5% | 2 |
| 3% | 1.0% | 3 |
| 3% | 0.5% | 6 |
| 3% | 0.25% | 12 |
Three losses in a session is an ordinary morning, not a disaster. If your risk per trade means three losses ends the day, the size is wrong regardless of how good the setups looked.
The same logic applies to the maximum drawdown. On an 8% total limit, 0.5% risk gives you sixteen consecutive full losses of room — enough for a genuinely bad fortnight to pass without ending the account.
Four mistakes that cost accounts
- Choosing the stop to fit the size. Backwards. The chart sets the stop; the stop sets the size.
- Fixed lots on every trade. Your worst day becomes a matter of chance.
- Ignoring correlation. Three dollar-driven longs at 0.5% each behave like one trade at 1.5%.
- Forgetting floating positions. Open trades count toward the daily figure. Size the next trade against the room you have left, not the room you started with.
Do it in seconds
Our risk and drawdown tools run this calculation against your live account limits, and the position sizing guide covers the volatility side — why an ATR-based stop makes the adjustment automatic.
If you want to prove the method before paying for anything, the $5 Pay After Passing challenge is a reasonable place to test it: you only pay the account fee once you have already passed.