Position sizing: how much to risk per trade, and how to size from your stop-loss

You take two EURUSD trades at 1 lot each. The first has its stop-loss 10 pips away, the second 40 pips away. Both are stopped out. The first loss costs $100. The second costs $400.

You traded the same size both times, but you didn't risk the same amount. The second trade put four times as much at risk, only because the chart put the stop-loss farther away.

Size comes last

A fixed size makes your risk depend on your stop-loss. Sizing from your risk turns that around: every trade risks the same amount, and the size follows from the stop-loss.

The order is:

1. Decide your risk per trade, in money or as a percentage of your account.
2. Place your stop-loss where the chart says the trade is wrong.
3. Work out the size, so a stop-out costs exactly your risk.

A stop-loss far away gives a smaller size and a close one a bigger size, so the loss stays the same.

The calculation

Size = risk ÷ what the stop-loss distance costs on 1 lot.

A forex pair. Your account is $10,000 and you risk 1%: $100. On EURUSD, 1 standard lot moves $10 per pip. Your stop-loss is 25 pips away, so 1 lot would lose 25 × $10 = $250. Your size is $100 ÷ $250 = 0.4 lots.

Gold. Same $100 risk. If your broker's gold lot is 100 ounces, a $1 move costs $100 on 1 lot. Your stop-loss is $8 away, so 1 lot would lose $800. Your size is $100 ÷ $800 = 0.125 lots, which rounds down to 0.12 at a broker that sizes in steps of 0.01.

Check your broker's lot size. A lot of gold, an index or a crypto pair can mean different amounts at different brokers. The calculation is only right with your broker's number.

Round down, not up. A size that rounds up risks a little more than you planned. Rounding down risks a little less.

A fixed amount or a percentage of your balance

A fixed amount risks the same money on every trade, for example $100, until you decide to change it.

A percentage of your current balance risks less after losses and more after wins. Risk 1% of your balance and lose ten trades in a row, and you are down about 9.6%, against 10% with a fixed $100 on a $10,000 account. The difference grows with longer streaks.

Either one works if you keep to it. Decide which, and write it in your plan.

How much to risk

No one number fits everyone, so work yours out from your own log.

Start from your losing streaks. Look at the longest run of losses in your log, and assume a longer one can come. If your longest is 7, plan for 10. Risking 1% of your balance, ten losses in a row cost about 9.6%. At 3%, they cost about 26%.

Look at your deepest drawdown in R. If your log's deepest drawdown is 12R, then at $100 a trade that was $1,200. At $300 a trade, the same trading would have cost $3,600. Ask whether you could keep trading your plan through that.

On a prop account, start from the firm's limits. Divide the firm's daily loss limit by your risk per trade to see how many losses a day you can take. With a $5,000 daily limit and $500 a trade, ten full losses reach it. With $1,250 a trade, four do. The firm's page says how its limits are counted.

Keep it steady

Keep the size after a loss. Sizing up to win a loss back means the next loss costs more than the one before it. If your log shows you size up after a loss, keeping the size fixed is the first rule to set.

Change your risk on a set day. Raise or lower it at the start of a month or a week, from your numbers, and not after a good or a bad trade.

Log the risk on every trade. With the risk on each trade, your results can be read in R, and you can see whether your sizing stayed the same. If you are new to R, R-multiple, explained covers it.

How Vink helps

Risk per trade on each account. In Settings, each account has "Risk per trade", as an amount or as a percentage of the account's starting capital, so a percentage there stays the same amount until you change it. It fills in the risk on every new trade on that account.

Size worked out for you. On the trade form, Risk sets "Size / qty": your risk divided by what the stop-loss distance costs, in lots. If you type a size instead, Risk follows it. A pair priced in another currency than your account's is not converted, and the form says so. Vink shows the exact size, so round it down to your broker's step when you place the trade.

Your broker's lot size. Under "Costs and lot sizes" in Settings, you can set what 1 lot of a ticker is at your broker. Without it, Vink uses its own guess for the symbol.

A risk rule in your plan. Your trading plan can hold "How much do you risk on one trade, at most?", as a percentage of the account or an amount. Vink checks it on every trade, and the first time a trade dated today risks more, a note shows your rule and the trade's risk.

Your size after a loss. In Stats, "How do I behave?" shows "Size after a loss" and "Size after a win", as a multiple of your usual risk. When you size up after a loss, its answer can say "You size up after a loss."

Your streaks and drawdowns. In Stats, "Is this drawdown normal?" shows how deep a drawdown and how long a losing streak your own trades can produce over 100 trades.

The boundary

Vink works out the size but doesn't place the trade. It cannot reach your broker, so the size you enter on your platform is the one that counts. If the risk you took differs from the form, type the real one so your results in R stay right.

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Decide your risk first, place your stop-loss from the chart, and work out the size from the two, so every full loss costs the same. Pick the risk from your own losing streaks, drawdowns and limits, and keep it the same after a loss.