Position size calculator

How position size is calculated

The calculator starts from the money you are prepared to lose on the trade, which is the account balance multiplied by the risk percentage, or the amount you type in. It then works out what one pip is worth on one standard lot of the instrument in your account currency, multiplies that by the stop loss distance to get the loss per lot if the stop is hit, and divides the risk amount by that loss. The result is the number of lots at which hitting the stop costs exactly the amount you chose.

In symbols: lots = risk amount divided by (stop loss in pips multiplied by pip value per lot). A standard lot is 100,000 units of the base currency for a currency pair, 100 ounces for gold and 5,000 ounces for silver. A mini lot is a tenth of that and a micro lot a hundredth, and most brokers let you trade in steps of 0.01 lots.

A worked example

With a 10,000 dollar account, one percent risk and a 25 pip stop on EUR/USD, the risk amount is 100 dollars. One pip on a standard lot of EUR/USD is worth 10 dollars, so a 25 pip stop costs 250 dollars per lot, and 100 divided by 250 gives 0.40 lots, or 40,000 euros. If the account were held in euros the pip value would be converted at the EUR/USD rate first, which is why the account currency matters.

What it does not do

It does not check that your broker allows the size, that you have the margin to open it, or that the stop loss is sensible for the instrument's volatility. The margin calculator answers the second question. The spread comparison shows what the position costs to open, which is a separate matter from what it risks.