Position sizing from a risk budget

The four inputs

The theoretical size needs four numbers. A tradable size also needs your platform's minimum size and size step. If any input is a guess, the answer is a guess.

• Account size: the balance your risk percentage is measured against. Decide whether that is the starting balance or a current figure, and be consistent.
• Risk per trade: the percentage of that balance you accept losing if the stop is hit. This is your rule, not something the math chooses for you.
• Stop distance: how far, in pips or ticks, price must move against you to hit the stop.
• Value per pip or tick: the money one pip or tick is worth for one unit (one standard lot, or one contract). This comes from your broker or the exchange.

The formula

The result is a theoretical size. It is almost never a number you can actually trade, because brokers and exchanges only accept certain increments. The rounding step below is where most sizing mistakes happen.

Worked example: forex (hypothetical)

Assume a $100,000 account, a 0.5% risk rule, a USD-denominated account trading EUR/USD, and the common assumption that one standard lot is worth $10 per pip on that pair. The planned stop is 25 pips.

Now widen the stop to 40 pips with everything else unchanged. Risk per lot becomes 40 x $10 = $400, and $500 / $400 = 1.25 lots. The dollar risk did not change; the size shrank to absorb the wider stop. That is the point of sizing from risk: a wider stop means a smaller position, not a larger loss.

Worked example: futures (hypothetical)

Same $500 risk budget. This time the instrument is the E-mini S&P 500 (ES), which has a minimum tick of 0.25 index points worth $12.50 per contract according to CME Group's published specification. The planned stop is 12 ticks (3.00 points).

Four contracts would risk 4 x $150 = $600, which is $100 over the $500 budget. Futures only trade in whole contracts, so the honest answer is 3, with $50 of budget left unused.

Rounding down, never up

Your platform specifies both a minimum size and a size step. They are separate settings: allowed sizes in this calculator are multiples of the step, at or above the minimum (not minimum plus multiples of the step). Round the theoretical size down to the nearest allowed step. Rounding to the nearest value can push you over budget.

If that rounded size is below the minimum, no trade fits. Display precision is not a broker specification.

Example: a theoretical 1.287 lots with a 0.01 step becomes 1.28, not 1.29. With a 0.1 step it becomes 1.2. If the theoretical size is below the minimum step (for example 0.6 of a contract), the trade does not fit the budget at that stop distance. The options are a smaller instrument, a different plan, or no trade; not rounding up to 1.

For ES with a $100 budget and the same 12-tick stop, one contract risks $150. With minimum 1 and step 1, the calculator shows zero contracts and a no-trade warning, not permission to round up.

Costs the formula ignores

The stop-distance formula measures price movement only. Real losses can be larger because of:

• Spread: you may enter on one side of the quote and exit on the other.
• Commissions and exchange or platform fees, charged per lot or per contract, often on both entry and exit.
• Slippage: in fast markets or gaps, a stop order can fill beyond its price.
• Swap or financing charges for positions held overnight.

A practical habit is to estimate these costs per unit and add them to risk per unit before dividing. For instance, if you estimated $7 of round-trip costs per ES contract, risk per contract would be $157 rather than $150. The size still rounds down to 3 in this example, but on tighter budgets the difference can change the answer.

What to enter in the calculator

For the futures example above, the TradeMathic calculator fields map like this:

For the forex example, select Forex, keep account size and risk, enter 25 pips and a pip value of 10. The calculator displays 2 lots when minimum and step are both 0.01. Change the stop to 40 pips to reproduce the 1.25 versus 1.2 lot comparison above. Set minimum size and size step from your platform specifications, not from the number of decimals displayed. The calculator rounds down using those settings and shows modeled loss after rounding separately from the risk budget. Defaults are illustrative, not live broker data; changing markets loads new example settings.

Limitations

• The calculator assumes linear contracts where each pip or tick is worth a fixed amount. Inverse or non-linear crypto contracts, and CFDs with unit multipliers that change by symbol, are not universally supported; check how your instrument is valued.
• It uses the minimum and step you enter, without fetching or verifying broker specifications. It does not know margin requirements. A size that fits the risk budget can still be rejected for margin.
• It does not model costs, slippage or gaps.
• It does not check any prop-firm rule. A trade sized correctly can still breach a daily loss limit; see the drawdown guide.

Sources

Contract specifications can change. Treat the exchange's current page as authoritative.