Position sizing without guesswork
A practical position-sizing workflow with formulas, examples, and a pre-trade sizing checklist.
By TradaxLab
Start from risk, not from “how many lots feel right”
Decide the cash you’re willing to lose if the stop hits (account × risk %). Then back out size from stop distance.
Use Position size for units, Lot size for FX contracts, and hand off between them when you add a pair and stop in pips.
Prop and daily budget
If you trade a funded account, Prop drawdown and Daily risk desk answer a different question: can you still take the next trade without breaching rules?
Size only after that check is clear — otherwise perfect R:R on paper still fails the firm.
Quick sizing formula + worked example
Formula: position size = (account × risk %) ÷ stop distance value.
Example: account 20,000, risk 0.5%, stop distance cash-equivalent 250. Max risk = 100, so size = 100 ÷ 250 = 0.4 of your standard unit.
If spread/fees increase effective stop, recalculate before submitting.
Pre-trade sizing checklist
1) Stop is defined before size.
2) Cash risk matches your plan, not your emotion.
3) Daily/prop limits still leave room for next trades.
4) Cost assumptions (spread/commission/slippage) are included.