The formula
Position size (lots) = (Account × Risk %) ÷ (Stop distance in pips × Pip value per lot)
Why position sizing matters
No strategy wins every trade. What separates traders who survive from those who don't is how much they lose on the trades that go wrong. Fixing your risk at a small percentage of your account keeps any single loss — or a string of them — from doing serious damage.
| Risk per trade | Account left after 10 straight losses |
|---|---|
| 1% | ≈ 90% |
| 2% | ≈ 82% |
| 5% | ≈ 60% |
| 10% | ≈ 35% |
Worked example 1: EUR/GBP
- Account: £2,000; risk 1% = £20
- Stop-loss: 25 pips
- Pip value: £10 per standard lot
Position size = £20 ÷ (25 × £10) = 0.08 lots (8 micro lots). If the stop is hit, you lose about £20 plus the spread.
Worked example 2: GBP/USD
- Account: £5,000; risk 1% = £50
- Stop-loss: 40 pips
- Pip value: $10 per standard lot ≈ £7.87 at 1.2711
Position size = £50 ÷ (40 × £7.87) ≈ 0.159 — rounded down to 0.15 lots.
Set the stop first, then the size
A common mistake is choosing a position size and then squeezing the stop-loss to fit. Do it the other way round: place the stop where your trade idea is proven wrong, then calculate the size that keeps the loss at 1%.
Where leverage fits in
In example 2, a 0.15-lot GBP/USD position is worth £15,000, which needs £500 margin at 30:1. Leverage decides whether you can open the trade; position size and stop distance decide what you can lose.
Practical tips
- Round position sizes down, never up.
- Include the spread in your stop distance.
- Recalculate as your balance changes.
- Set a daily loss limit (for example 3%) and stop trading when you hit it.
Position sizing for spread bets
Spread betting makes the maths simpler, because stakes are already in pounds per point:
Stake per point = (Account × Risk %) ÷ Stop distance in points
Example: £3,000 account, 1% risk = £30, stop 30 points → £30 ÷ 30 = £1 per point.
Adjusting for volatility
A fixed 20-pip stop might be generous on EUR/GBP on a quiet day and far too tight on GBP/JPY during a busy session. Many traders base stop distance on recent volatility — for example, a multiple of the Average True Range (ATR) — and then let the position-size formula do the rest. Wider stops mean smaller positions; the money at risk stays the same.
Risk across several trades
Opening three trades at 1% each on GBP/USD, EUR/USD and GBP/JPY isn't 1% risk — the pairs often move together, so it's closer to a single 3% bet on the dollar or the pound. Set a maximum total risk across open positions (for example 3%) and count correlated trades together.
Quick reference
| Account | 1% risk | Stop 20 pips (EUR/GBP) | Stop 40 pips (EUR/GBP) |
|---|---|---|---|
| £1,000 | £10 | 0.05 lots | 0.02 lots |
| £2,500 | £25 | 0.12 lots | 0.06 lots |
| £5,000 | £50 | 0.25 lots | 0.12 lots |
| £10,000 | £100 | 0.50 lots | 0.25 lots |
Based on £10 per pip per standard lot on EUR/GBP, rounded down to the nearest 0.01 lot.
Frequently asked questions
What is the 1% rule in trading?
It means risking no more than 1% of your account balance on any single trade — the amount you'd lose if your stop-loss is hit.
Is 1% too cautious?
For most retail traders it's a sensible maximum. Even with 1% risk, a run of ten losing trades costs about 10% of the account, which is recoverable.
Does leverage change my risk?
Leverage determines how much margin you need, not how much you lose if your stop is hit. Your risk is set by position size and stop distance.
CFDs and spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage. Most retail investor accounts lose money when trading these products. You should consider whether you understand how they work and whether you can afford to take the high risk of losing your money. Content is general information, not financial or tax advice.