Risk Management6 min read
Position Sizing: How to Calculate Lot Size From Risk
Position sizing is the calculation that turns a decision about risk into a number of lots or contracts. It answers one question: given that I am willing to lose X and my stop is Y away, how much can I buy?
It is the most important skill in trading under a drawdown limit, and the one most consistently skipped. Traders spend months refining entries and then size every trade the same regardless of how far away the stop is, which makes their actual risk per trade random.
The formula
Position size = (account balance × risk percentage) ÷ (stop distance × value per point).
Every term is known before you enter. The account balance is fixed, the risk percentage is your rule, the stop distance comes from where your idea is invalidated, and value per point is a property of the instrument. There is no discretion involved once the stop is chosen.
- Step 1 — cash at risk: balance × risk % (e.g. $10,000 × 0.5% = $50)
- Step 2 — stop distance in points, taken from your invalidation level
- Step 3 — size = cash at risk ÷ (stop distance × value per point)
Worked example
A $10,000 account, risking 0.5% per trade, gives $50 of cash risk. Your setup invalidates 40 points away and the instrument is worth $1 per point per lot.
Size = $50 ÷ (40 × $1) = 1.25 lots. If the same setup on a different day invalidates 80 points away because volatility has doubled, size becomes 0.625 lots. Different lot sizes, identical cash risk — which is the entire point.
Why fixed lot sizing fails
Trading one lot on every setup means your loss size is determined by wherever your stop happens to be. A tight-stop trade risks a small amount and a wide-stop trade risks several times more, so your worst day is decided by chance rather than by your rules.
Under a daily loss limit this is fatal. Two wide-stop losses can consume an entire day's allowance while two tight-stop losses barely register, and you have no reliable idea in advance which day you are having.
Sizing against a drawdown limit
Work backwards from the rule. If the daily loss limit is 3% and you want at least five full losses of room before the day is over, maximum risk per trade is 0.6%. If the maximum total drawdown is 8%, that same 0.6% gives you roughly thirteen consecutive full losses before the account is gone.
Most consistent funded traders risk between 0.25% and 1% per trade. Anything above 2% means a normal losing streak — and five losses in a row is entirely normal — takes the account out.
Frequently asked questions
How much should I risk per trade on a funded account?
Between 0.25% and 1% of balance is the range most consistently funded traders operate in. Work backwards from your daily loss limit: divide it by the number of consecutive full losses you want to survive in one day.
How do I calculate lot size?
Divide your cash risk by the stop distance multiplied by the value per point. Cash risk is your account balance times your risk percentage, and stop distance comes from where your trade idea is invalidated — never from how much you want to risk.
Should position size change with volatility?
Yes. When volatility rises, stops must widen to stay outside the noise, and size must fall proportionally to keep cash risk constant. Using ATR for stop distance makes this adjustment happen automatically.
Related guides
ATR (Average True Range)
A volatility measure, not a direction signal. The cleanest input available for stop distance and position size.
ReadRisk-Reward Ratio
R:R is meaningless without win rate. The breakeven table, and why 5R targets often produce worse results than 2R.
ReadDrawdown
The rule that ends most evaluations. Daily vs maximum, static vs trailing, and what balance each is measured against.
ReadTrade it on a funded account
MixFunded evaluations start from $5. Payouts are processed every Monday in USDT (TRC-20) and published on-chain.