The Complete Guide to Position Sizing.
Position sizing is the single most important mathematical factor in trading survival. Even a trading strategy with a 65% win rate will eventually blow up if position sizes are determined by gut feel.
Fixed-fractional sizing formula
The fixed-fractional model dictates that on every single trade, you risk a fixed, predetermined percentage (typically 1% to 2%) of your current total equity.
Notice that position size is an output, not an input. Your stop-loss placement is determined by chart market structure; your risk is determined by your account rules. The formula calculates the exact quantity to buy or sell.
Calculating crypto position size (BTC/USD)
Suppose you have a $10,000 trading account and intend to risk exactly 1% on a long Bitcoin breakout trade:
- Account Equity: $10,000
- Risk %: 1.0% ($100 maximum risk)
- Entry Price: $64,000
- Stop Loss: $63,200 (technical invalidation below support)
- Stop Distance: $64,000 − $63,200 = $800
- Calculated Position Size: $100 ÷ $800 = 0.125 BTC ($8,000 Notional Value)
Forex lot calculations (EUR/USD, GBP/USD, USD/JPY)
In forex, trades are denominated in standardized contracts called lots. A standard lot is 100,000 units of the base currency, a mini lot is 10,000 units, and a micro lot is 1,000 units.
| Lot Type | Contract Units | Pip Value (EUR/USD) |
|---|---|---|
| Standard Lot | 100,000 | $10.00 / pip |
| Mini Lot | 10,000 | $1.00 / pip |
| Micro Lot | 1,000 | $0.10 / pip |
Leverage changes margin, not risk
A common misconception among beginner traders is that increasing leverage increases risk. In reality, your dollar risk is determined only by your position size and stop-loss distance.
Leverage simply reduces the collateral (margin) required by your exchange to hold the trade. If you hold 0.125 BTC with an $800 stop distance, your maximum loss is $100 whether you use 1×, 5×, or 20× leverage — as long as your liquidation price is farther away than your stop loss.
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