Calculating position size

The formula

Position size is the amount you are willing to lose divided by the loss per unit if the stop is hit:

units = risk amount ÷ (loss per unit at the stop)

The stop comes first. Until you know where the trade is wrong, you cannot know the loss per unit, so you cannot know the size. A stop chosen after the size, to fit the size, is the rule running backwards.

Three inputs, in order:

1. Risk amount. The fraction from the previous lesson, applied to current equity. 1% of 10,000 euros is 100 euros.
2. Stop distance. Entry price minus stop price, in the instrument’s own units: dollars for gold, points for an index, pips for a currency pair.
3. Value of one unit per point. What one lot or contract gains or loses when the price moves by one of those units, in your account currency.

The third input is the one that differs from instrument to instrument, and it is where most sizing mistakes are made.

What one lot is

On a CFD platform such as MetaTrader 5, a lot is a contract size fixed by the broker, and sizes move in steps of 0.01 lot. The figures below are the common ones. Always confirm them in the contract specification for your account type, because they are set by the broker, not by the market.

Instrument	One standard lot	One point of price is worth
Gold CFD, XAUUSD	100 troy ounces	100 USD per 1 USD move
EURUSD	100,000 euros	10 USD per pip (0.0001)
Index CFD	Set by broker, often 1	1 unit of the index currency per point
Share CFD	1 share, or a block	The share’s currency per 1.00 move per share

Two of the four rows already show why the calculation cannot be skipped: the same 20-point stop is worth wildly different amounts of money on gold and on a currency pair.

Worked example: gold CFD

Gold is quoted at 3,000 dollars and the trade enters there with the stop at 2,985, a distance of 15 dollars. The account is 10,000 euros, the rule is 1%, and one euro is worth 1.10 dollars.

1. Risk amount: 1% of 10,000 = 100 euros, which is 110 dollars.
2. Loss per ounce if stopped: 15 dollars.
3. Ounces: 110 ÷ 15 = 7.33 ounces.
4. Round down to the lot step: 7 ounces, which is 0.07 lot.
5. Check: 0.07 × 100 × 15 = 105 dollars, about 95 euros. Under the limit.

With a wider stop at 2,950, a distance of 50 dollars, the arithmetic gives 2.2 ounces, rounded down to 0.02 lot, and a loss if stopped of 100 dollars. Wider stop, smaller position, same money at risk. That is the whole point of the formula.

Worked example: index CFD

A European index CFD is quoted at 18,000 and one contract is worth 1 euro per point. The entry is 18,000 and the stop is 17,880, a distance of 120 points. The account currency matches the index currency, so no conversion is needed.

1. Risk amount: 100 euros.
2. Loss per contract if stopped: 120 points × 1 euro = 120 euros.
3. Contracts: 100 ÷ 120 = 0.83.
4. Round down: 0.8 contract if the broker allows 0.1 steps, which risks 96 euros. If the smallest step is one whole contract, the answer is no trade, because one contract already risks more than the rule allows.

Worked example: currency pair

EURUSD is quoted at 1.1000, the entry is there and the stop is at 1.0960, a distance of 40 pips. One standard lot moves 10 dollars per pip.

1. Risk amount: 100 euros, which is 110 dollars.
2. Loss per lot if stopped: 40 pips × 10 dollars = 400 dollars.
3. Lots: 110 ÷ 400 = 0.275.
4. Round down to the lot step: 0.27 lot, which risks 108 dollars, about 98 euros.

Why round down

Lot sizes come in steps, so the exact answer is rarely tradable. Always round to the smaller size. Rounding 7.33 ounces up to 0.08 lot would put 120 dollars at risk, over the limit.

On a small account this matters more. If the calculation gives 0.4 ounces, the answer is not 0.01 lot but no trade, because one ounce would already risk more than the rule allows. The rule sets the ceiling. The lot step decides whether there is room under it. This is also the arithmetic behind the minimum deposit on a copied strategy: below a certain account size, the rounding stops being small.

Futures: the same formula, whole contracts only

A futures contract has an exchange-set size and cannot be split. The COMEX gold future is 100 ounces, so the 15 dollar stop from the gold example risks 1,500 dollars per contract. On a 10,000 euro account at 1% that is fifteen times the limit, and the answer is zero contracts. The micro gold future is 10 ounces, risking 150 dollars on the same stop, still over the limit. The rule is honest about this: a small account cannot size that trade in futures, and a broker that lets you take it anyway is not doing you a favour.

Futures also carry an expiry and are settled daily against the account, so the loss per contract is realised every evening rather than at the close of the trade. The sizing arithmetic is the same. The instrument is less forgiving of getting it wrong.

Options: size by premium, not by stop

For a bought option there is no stop to place, because the most you can lose is what you paid. The formula becomes:

contracts = risk amount ÷ (premium per contract)

If a call costs 2.50 per share and one contract covers 100 shares, one contract costs 250. With a 100 euro risk amount, the answer is zero contracts, or a cheaper option, or a larger account. The loss is capped, but it is also very likely, since most bought options expire worthless, so the fraction should not be raised just because the loss is known in advance.

A sold option reverses this. The premium received is the maximum gain, and the loss can be many times larger. Sizing a sold option by the premium is the classic way to lose an account, and the only safe approach is to size it by the worst realistic move in the underlying, exactly as if it were a leveraged position with a very wide stop.

Leverage does not appear in the formula

Notice that leverage was never used. Leverage decides how much margin the broker holds for the position, which affects whether you can open it, not how much it can lose. A 0.07 lot gold position at 3,000 dollars is worth 21,000 dollars. At 1:100 leverage the margin is 210 dollars, at 1:500 it is 42 dollars. The loss if stopped is 105 dollars in both cases. Size by the stop, not by the margin.

Use the calculator, but know the arithmetic

The position size calculator in the Tools section does all of this for CFDs, including the currency conversion and the lot step. Use it. But do the arithmetic by hand a few times first, because the calculator will happily size a trade for a stop placed in the wrong place, and only you can catch that.