# How to calculate position sizing

This aspect of your Risk Management should be in place before executing the Trade in interest, by asking yourself:

How Many Lots Should I Sell or Buy?

One of the fundamental mistakes inexperienced Traders make is to Trade with inconsistent amounts per trade. Overexposing the Account might lead to larger Drawdowns and eventually wipe out the entire Account’s balance. Therefore, when the Trader knows how much he/she has at risk in a single trade compared to his/her total capital, trading will become much more stable and in control

In order for you to be able to calculate Position Sizing, you have to be aware of:

• How much money do you have to trade
• What percentage of your money you are willing to risk
• What is the distance between the entry price and the stop loss for every trade
• What is the pip value per standard lot of the currency pair traded

Once the points above are already in place, you are ready to calculate your position’s size by using the formula:

### Position size = ((account value x risk per trade) / pips risked) / pip value per standard lot

Let us look at an example where the Trader is going to open several positions, the same equation would be used to limit the overall risk in all the open positions.

The difference is that a maximum number of open positions has to be set beforehand and a partial risk is attributed to each one of the positions.

For this example, we are taking the same 10,000 US Dollar account and limiting the overall risk of loss to 6%. Now attribute to each trade a certain amount of risk until you sum 6% – from there on, no new positions can be opened.

One of the characteristics of risking a fixed percentage is that it forces the trader to consider and calculate in terms of percentages and not pips.

It is important to be mentioned that by risking the same percentage always you can generate a profit even when the total net pip amount is negative.

The following table shows an example: