Lesson 3.2
How to calculate position size, step by step
Work out your lot size for any gold or forex trade in four steps: your risk in money, your stop in pips, the value of a pip, and a simple division. With worked examples.
Short answer: position size = the money you’re willing to lose ÷ (your stop loss in pips × the value of one pip per lot). On gold one pip is worth $10 per lot, so risking $25 with a 60-pip stop gives $25 ÷ (60 × $10) = 0.04 lots. Always round down.
Why position size comes first
Two traders take the same gold trade with the same stop. One loses $24 when it fails; the other loses $600. The trade was identical. The only difference was position size.
Position size is the one part of a trade you fully control. You can’t control whether the trade works. You can control how much it costs you when it doesn’t. That’s why it’s worked out before you enter, from the stop, never the other way round.
If lots are new to you, read what is a lot size first.
The four steps
Step 1: decide your risk in money
Pick the most you’re willing to lose if this trade hits its stop. Most guides suggest a small, fixed percentage of your balance, often 1% or less, so that a run of losses doesn’t do lasting damage.
$2,500 balance × 1% = $25.
Step 2: measure your stop in pips
The stop loss is where the trade idea is proven wrong. Measure the distance from your entry to the stop in pips.
On gold, $1 of price is 10 pips. Entry 4036, stop 4030: a $6 move = 60 pips. (More in what is a pip.)
Step 3: find the value of one pip per lot
| Instrument | 1 pip per standard lot (USD account) |
|---|---|
| Gold (XAU/USD) | $10 |
| EUR/USD, GBP/USD, AUD/USD, NZD/USD | $10 |
| USD/JPY | about $6.67 at a price of 150 |
| USD/CAD, USD/CHF | changes with the price |
Step 4: divide, then round down
Position size = risk ÷ (stop in pips × pip value per lot)
$25 ÷ (60 × $10) = 0.0417 lots → 0.04 lots.
Brokers trade in steps of 0.01 lots. Rounding up would mean risking more than you planned, so always round down. At 0.04 lots you’d actually risk 60 × $0.40 = $24.
Three worked examples
| Gold | EUR/USD | USD/JPY | |
|---|---|---|---|
| Balance | $2,500 | $5,000 | $5,000 |
| Risk (1%) | $25 | $50 | $50 |
| Stop loss | 60 pips | 25 pips | 30 pips |
| Pip value per lot | $10 | $10 | $6.667 (at 150) |
| Sum | $25 ÷ (60 × $10) | $50 ÷ (25 × $10) | $50 ÷ (30 × $6.667) |
| Position size | 0.04 lots | 0.20 lots | 0.25 lots |
The stop decides the size, not the other way round
Keep the same $25 of risk on a $2,500 account and change only the stop:
| Stop on gold | Position size | Money at risk |
|---|---|---|
| 20 pips | 0.12 lots | $24 |
| 60 pips | 0.04 lots | $24 |
| 120 pips | 0.02 lots | $24 |
A wider stop doesn’t mean more risk. It means a smaller position. What changes is how far the price can move against you before the idea is wrong.
When the numbers don’t work: small accounts
On a $300 account, 1% is $3. With a 50-pip gold stop, even the smallest position (0.01 lots) risks 50 × $0.10 = $5, which is 1.7% of the account.
You have three honest options:
- Skip the trade and wait for one with a tighter stop.
- Accept a bigger percentage, knowing each loss will hurt more.
- Add more to your account first, but only money you can afford to lose.
What you shouldn’t do is move the stop closer just to make the numbers fit. The stop belongs where the idea is wrong, not where your account size wants it.
A quick checklist before you trade
- I know my risk in money for this trade.
- I’ve measured the stop in pips from my actual entry.
- I’ve rounded the lot size down.
- I’ve typed the lot size into the order carefully: 0.04, not 0.4.
Skip the maths
The lot size calculator does all four steps for gold and seven currency pairs, rounds down for you, and shows the real money at risk. It also has a table of gold lot sizes for common balances and stops.
Key points
- Position size = risk ÷ (stop pips × pip value per lot).
- Decide the stop first, then size the position to fit it.
- Round down to the nearest 0.01 lots.
- If even 0.01 lots is too much risk, skip the trade rather than squeezing the stop.