Position sizing and risk-reward in forex
Most blown accounts come from position size, not from the entry. The good news is that sizing is simple maths. Decide how much you are willing to lose on the trade, then let the stop distance decide the lot size.
The lot size formula
Lots = (account balance × risk percent) ÷ (stop distance in pips × pip value per lot).
Example: balance $10,000, risk 1 percent = $100. Stop 25 pips on EUR/USD, where one pip is worth about $10 per standard lot. Lots = 100 ÷ (25 × 10) = 0.40 lots.
Pips and pip value
- A pip is 0.0001 on most pairs and 0.01 on pairs with the Japanese yen
- On pairs where USD is the second currency (EUR/USD, GBP/USD, AUD/USD) a standard lot (100,000 units) is worth about $10 per pip
- On USD/JPY a pip is worth 1,000 yen per lot, about $6 to $7 at recent prices
- Brokers differ on gold and indices, so check the contract size
R multiples: think in risk units
One R is your risk on the trade. A 1:2 trade risks 1R to make 2R. Measuring everything in R makes your results independent of account size and keeps your head clear.
The win rate you need
Before costs, the break-even win rate is 1 ÷ (1 + reward to risk).
| Reward : risk | Break-even win rate |
|---|---|
| 1 : 1 | 50 percent |
| 1 : 1.5 | 40 percent |
| 1 : 2 | 33 percent |
| 1 : 3 | 25 percent |
Why small risk survives losing streaks
Losses are part of every strategy. What matters is whether you can survive a streak and keep trading.
| Risk per trade | After 10 losses in a row |
|---|---|
| 0.5 percent | about 4.9 percent down |
| 1 percent | about 9.6 percent down |
| 2 percent | about 18.3 percent down |
| 5 percent | about 40.1 percent down |
Expectancy: the number that matters
Expectancy = (win rate × average win) minus (loss rate × average loss), in R. If you win 40 percent of trades at +2R and lose 60 percent at -1R, expectancy is 0.4 × 2 - 0.6 × 1 = +0.2R per trade. Tiny edges add up only if you size small enough to survive and take every valid trade.
Frequently asked questions
How do I calculate lot size?
Divide the money you are willing to lose by the stop distance in pips times the pip value per lot. The position size calculator on this site does it for you.
What is a good risk per trade?
Many traders risk 0.5 to 1 percent. The right number is one that lets you survive a long losing streak without changing your behaviour.
Does a bigger reward to risk always help?
Not by itself. A far target is hit less often. Backtest to see what your setup really produces.