This week’s question comes from Emmanuel, who asks:
How do I calculate the position size for my trades, and how much should I risk?
What if I told you that you could lose money on over 100 trades before even having to worry about a blown account?
And not just any trades, but 100 trades in a row.
Heck, let’s make it 200 trades.
The odds of you losing 200—or even 100—trades in a row are incredibly slim.
In fact, this scenario is downright unrealistic.
Of course, your goal as a trader isn’t simply to avoid a blown Forex account.
However, the longer you can stay in the game, the greater your chances are of finding success.
That’s the key here.
Today I want to talk to you about the importance of proper position sizing when trading Forex.
I’m also going to walk you through the steps I use to get the job done in 30 seconds or less.
So how can you position size like a pro in 30 seconds or less?
First, let’s rewire your brain so that you think correctly about risk in the Forex market.
Trading Risk Isn't Just About the Money
Most traders think about risk as if it’s an unemotional topic.
How many times have you heard the following?
Risk no more than 2% of your account balance on each trade.
It sounds easy enough, and the process of calculating 2% of an account balance is as straightforward as it gets.
But here’s the thing…
Your emotions are tied to the amount you risk.
Read that a few times if you must, because it’s the key to understanding the significance of today’s topic.
You can’t just pick a number like 2% and call it a day.
I mean, you could, but if the goal is to keep your emotions under control then you’d better give this decision some serious thought.
Risk too much and your emotions will get the better of you.
Risk too little, on the other hand, and your winning trades won’t feel meaningful which can lead to overtrading.
Why One Position Size Doesn't Fit All
We’re all wired differently, so why choose an arbitrary number like 2%?
For instance, I think anything over 1% of my balance is a lot to risk on one trade; at least all at one time anyway.
In fact, I almost always enter the market in 0.5% increments.
You may view that as being too conservative, and that’s okay.
That difference in opinion proves my point: since no two traders are alike, everyone should decide independently on a number that suits them.
Remember, the goal is to keep emotions in check. You can help do that immediately by lowering your risk to an amount you’re comfortable with.
The Forex Position Size Calculator I Use
I use the calculator I built for myself. You can get access here.
The best thing about this position size calculator is that it’s incredibly easy to use.
The first step involves selecting your account currency.
This is the currency you use to fund your trading account.
For instance, if you live in the United States you would select USD. If you live in a eurozone country, you would choose EUR for your account currency.
Next you should enter your account balance.
If your balance is $5,000, you would enter “5000” here without any symbols or comma separators.
It’s also good practice to exclude any profit from open positions.
So if your balance is $5,000 and you have an open position worth $100, you would enter “5000” here excluding the $100 in open profit.
Because that $100 in open profit is not yours until you close the position.
The third step is where you will enter your risk percentage.
This is the percentage of your account balance you’re willing to risk on this trade.
Be sure to remove the percentage symbol when you enter this number.
You can also toggle between risk percentage and money.
Using money instead of risk percentage allows you to enter the dollar amount you’d like to risk.
So if you know you’re comfortable risking $50, you can enter it here. But again, be sure to strip the currency symbol.
Next you’re going to enter your stop loss in pips.
If the trade setup calls for a 30 pip stop loss, you would enter “30” here.
This is why defining a stop loss upfront is critical.
Not only does it tell you when to get out if the market moves against you, but it’s also required to calculate a position size correctly.
Last but not least, you’ll want to choose the currency pair you’re trading.
That should be pretty self explanatory.
Now, if a new field appears after selecting the currency pair, don’t worry because I’ve got you covered with step 6 below.
Step 6 (if applicable)
As the name of the field implies, you need to enter the current price of the currency pair you’re trading.
In this case, I’ve selected USDCAD in step 5 so I would enter the current price for USDCAD here.
If your account currency is USD and you choose a pair such as EURUSD or NZDUSD, you will not need to enter the price for those pairs.
That’s because the quote currency (second currency in a pair) is the same as your account currency.
Once finished, I can click “Calculate” to get my results.
The results portion of the calculator shows five fields.
Depending on your Forex broker, you may need to enter the position size in units or lots.
My broker allows for units, so I would enter 44000 for my position size using this example.
However, if your broker only accepts various lot sizes, you will need to enter either 4 mini lots or 44 micro lots for this example.
If you aren’t sure what your broker uses, be sure to ask them.
Otherwise, you could find yourself entering a position size that’s far too large for your account.
In case you missed the link above, here’s the Forex position size calculator I use.
The Importance of Accepting the Amount Risked
Choosing what percentage you’ll risk is only half of the equation.
The other half involves accepting the risk.
I would argue that accepting the amount at risk is the most important part of the equation.
If you aren’t comfortable losing 2% of your account on one trade then choosing it as your risk amount does you no good.
In fact, it will only cause damage down the road.
So how exactly do you “accept” the risk?
Like most things in life, it helps to ask yourself a series of questions.
Is the trade setup worth it?
Even if you’re only risking 0.5% of your account balance, it’s important to make sure the setup in question is worth the risk.
If it isn’t, you shouldn’t be risking any capital regardless of the amount.
Am I prepared to lose the entire amount at risk?
A good way to think about this is to visualize the loss.
It’s far too easy to risk money online. The fact that we can’t physically see the money leaving our account makes it easier to place bets.
However, when you visualize losing $50 or $100, it can take on a whole new meaning.
Will the loss compromise me emotionally?
Again, it’s about visualizing how your account will look following the loss and also how you might feel.
If you have a $500 account and you lose $100 on one trade, I can all but guarantee you will be emotionally compromised.
You want to choose an amount so small that a loss becomes almost meaningless.
If you see a trading loss as anything more than the cost of doing business, it’s a sign that you are risking too much.
Whether you risk 2% or 0.5% of your balance per trade, it’s important to choose a percentage and dollar amount that you’re comfortable with.
Not only will it keep you in the game longer, it will also help to keep your emotions in check.
If in doubt, go with the smallest percentage. You can always increase your risk as your confidence grows.
Your Turn: Ask Justin Anything
I’d love for this weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.
To do that, I need your help.
Here’s what you can do to get involved and have your question answered in next week’s post:
- Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
- Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.
What about people with small Capital like 1000$?
Would you recommend a similar approach?
Absolutely. If you work in percentages, the size of your account is inconsequential.
thanks for your effort
You’re welcome, Atta. Thanks for commenting.
Good job Justin, i’m always looking forward to your analysis on my mail, you’ve made forex an interesting path to a life of financial independece and impacting lives far away here in Nigeria. My quetion is how to book part of your profit while your trade is still on?
That’s a question I haven’t tackled yet. Maybe I will next week. Enjoy your weekend.
Thanks Justin for all you do I would also like to know how to book part of your profit and leave rest of the trade to run
You’re welcome. Thanks for the feedback.
One of the great advantages to trading with microlots is that you can divide up your position and and close out partial positions so much easier than if you were trading in full contracts, or mini-lots. A full contract is 10 minis, or 100 micros. A mini is 10 micros. If your position is all micros, then you have a lot of flexibility in how you manage the size of your position by closing out in mini lots. The cost of the spread will remain the same.
I want to correct my comment to read: If your position is all micros, then you have a lot of flexibility in how you manage the size of you position by closing out in micro lots (and taking profit, or reducing risk). the cost of the spread will remain the same.
Jastine Bennett,,, you are a forex ginius!!!! one day i will be aforex master from you on what i learn….. thanks for forex education..
You’re welcome. I appreciate the support, Emmanuel. Have a great weekend.
Thanks a lot!! This was something I was looking for.
My pleasure, Zulfikar. I’m glad you found it helpful.
Marvellous explanation! It gave answers to my so long unanswered questions! Thank you a lot!
Thanks, Peter. Always happy to help.
Congratulations! maybe can do Thanks, many! Happy and family, wonderful, happy, successful
Thanks Justin another first class “how to” post
You’re welcome, Robert. Thanks for the support.
Thank you for this information. It really helps alot. I am from South Africa. I am 1 of your followers.
It’s my pleasure. Thanks for the feedback.
Justin, how do you size for oil and index trades? Normal calculators don’t include these.
It would depend on what instrument you’re using to trade oil. It’s the underlying asset for various products.
I would suggest you reach out to your broker with that question. Make them work for the commission you pay. 😉
Love the idea of trading 100 trades
Concept of safe trading very systematically presented.
Cheers. Thanks for stopping by.
Justin, I dont know if you coverd this already, but, can you do a Q&A on how to properly enter a trade with a stop loss!
If you search the blog for “stop loss” you’ll find a few articles. As for where to place the stop, it all depends on the strategy/setup.
Thank you Justin. That has been an eye opening post!
You’re welcome, Themby. I appreciate the feedback.
This is Andrew from Uganda. Thanks Justin. I have tried this on a 200$ dollar account but the lot calculated is empty!! What could be a general lot size for 100/200$ accounts??
You will likely need to use micro lots or units if your broker accepts it as a position size. The calculator on this site displays both.
Thanks a great deal
You’re welcome, Obioma.
That is a great job Justin.
However, can one leave his/her position open by not place stop lose pips?
Thanks, Jacob. As I mentioned in the post, you need the stop loss distance to calculate the position size correctly.
I would never advise entering a position without a stop loss.
On the mt4 platform there is a portion which is the volume where you will click on your position size.
Now 0.1 lot what does it mean in terms of monetary value like $10 or $100.
You need to know the currency pair and stop loss distance to figure out the monetary value of the position. Once you do that you can divide the amount at risk by the stop loss distance to determine the value per pip, etc.
I don’t agree with this approach because it doesn’t take the market price level. Even if your stop loss is accepted and if you are so far from the critical price levels, you would encounter the risk to be hit. This approach shall be seen in parallel with the market price movement. Saying I will apply a 2% risk and knowing you will be hit, it doesn’t make sense!
What approach are you disagreeing with? The use of a stop loss and calculating a position size you’re comfortable with?
As and new trader, what’s the suggested amount to start trading.
It’s a good question. I wrote a blog post at the link below you might find helpful.
This is risk, position sizing 101.
Risk is emotional but so is Profit.
Knowing your trade set up is vital. Set a stop loss which makes you comfortable for either win or loss results. Position sizing calculator is good for beginners but as you gain experience, it becomes an impediment, a speed bump. Imagine you have 8 setups all looking good, and assuming you trade multiple times in a day…..imagine that, the calculator will soon fade out of your tools set.
Therefore I learned and with some experience, I accepted, that I must enter the market in small increments…mini or micro lots ..then increase the size as my bias takes hold…..that is the next level 102.
Justin, thank you.
As always, do what works best for you. That said, I don’t believe the frequency of your trading should ever cause you to dismiss the importance of calculating a suitable positions size.
Absolutely, I respect the importance of calculating position sizes with a PS calculator. I think for a swing trader ok yeah it may be a necessity BUT for a scalper or intraday trading, it quickly became unnecessary for me.
As quoted… “place your stop loss at a point that, if reached, will reasonable indicate that the trade is wrong, not at a point determined by the maximum amount you are willing to lose”…Bruce Kovner.
Ultimately, our unique ways of trading the markets is paramount.
As always, thank you Justin.
Your Bruce Kovner quote is exactly what I teach on this site.
Thank you Justin bt
How do i find out which lot size to use
You can use the position size calculator here:
If you’re asking whether your broker requires lots or units, be sure to ask them. Make your broker work for the money you pay them. 😉
Thanks for the article but I need more clarification what does it mean when you say risk 1% or 2% per position of your capital That means you should risk 1% per position just opened on a single currency pair
Please why are we told to enter the asking price for another pair at the end of the calculator. And how do you enter the correct ask price when using limit or stop order
Thanks for making available the position size calculator and the tutorial on how to use it. Is there a way I can place this on the desktop or in an open chart for easy accessibility. Once more, thanks.