Working out position size
What you learn in 3 minutesPosition size is the number of lots you trade. It is not chosen by feel. It comes from three numbers you already have: the money you are willing to lose on the trade, the distance from your entry to your stop in pips, and the value of one pip for the size you are considering.
A 25-pip stop with ₱1,160 at risk
| Step | Amount | Note |
|---|---|---|
| Risk in money | ₱1,160 | The amount you have decided you can lose on this one trade. |
| Stop distance | 25 pips | The gap between your entry and your stop on the chart, counted in pips. |
| Pip value on one standard lot | about ₱10 | One pip on one standard lot of EUR/USD is 10 units of the quote currency, converted at about ₱58 per unit. |
| Risk per lot | 25 × ₱10 = ₱250 | Stop distance multiplied by pip value on one standard lot. |
| Position size | ₱1,160 ÷ ₱250 = 4.64 | Risk in money divided by risk per lot. 4.64 is the number of standard lots. |
| Position size in lots | 0.08 lots | Rounded down from 4.64 to 0.08 lots, because a smaller size keeps the risk inside your limit. |
Your broker may round the size to the nearest allowed step, quote a slightly different conversion rate for the peso, and charge a spread or commission on top. Those details vary between brokers.
The mistake people make here
The common mistake is to pick a lot size first, often because 0.10 lots looks like a normal amount, and then place the stop wherever it fits. That reverses the order. The stop belongs on the chart, where the idea is proven wrong, and the size is whatever makes that stop cost the money you chose to risk. Work out the size from the stop, not the stop from the size.Check yourself
You will risk ₱580 on EUR/USD. Your stop is 20 pips away. One pip on one standard lot is about ₱10. What size do you trade?
Risk per lot is 20 × ₱10 = ₱200. ₱580 ÷ ₱200 = 2.9. Rounded down, that is 0.02 lots.
You trade 0.05 lots on EUR/USD with a 30-pip stop. One pip on one standard lot is about ₱10. What is your risk in peso?
Pip value for 0.05 lots is about ₱0.50. Risk is 30 × ₱0.50 = ₱15.