Position sizing
Position sizing converts a risk decision ("I will risk 1% of the account on this trade") into a lot size, given the distance to the stop loss and the value of a pip or point. Two traders with the same entries and exits but different sizing rules end up with completely different outcomes.
Fixed-percent risk is the common baseline: risk the same fraction of current equity on every trade, so size shrinks in drawdowns and grows in profits. The alternative — fixed lots regardless of account size — makes losing streaks progressively more dangerous.
Covered in depth in Lesson 07: Position sizing: the arithmetic that keeps you alive.
Related terms
- Drawdown — The decline from an account's peak value to its subsequent low — the number that measures how painful a strategy is to hold.
- Risk per trade — The fraction of account equity a single trade can lose if its stop loss is hit.
- Lot size — The unit that measures position size in forex and metals — one standard lot is 100,000 units of the base asset.
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