Position Sizing

Position sizing refers to the process of determining how many units or lots to trade on a given position based on account size, risk tolerance, and the distance to a stop-loss level. Proper position sizing is a cornerstone of risk management — it ensures that no single trade risks more than a defined percentage of the trading account, typically 1 to 2 percent. Using a formula that accounts for account equity, risk per trade, and pip value, traders can scale positions consistently regardless of market conditions. Poor position sizing is one of the most common causes of account loss among retail traders.