Position size and risk, explained
How much to trade depends on how much you are willing to lose, not how sure you feel.
Many beginners pick a trade size by feel. Experienced traders work backwards from risk: first decide how much of the account you can afford to lose if the trade goes wrong, then size the trade to match.
The three numbers
- Your account balance.
- The share of it you will risk on one trade. Many traders keep this small, often 1% or 2%.
- Your stop distance: how far the price can go against you before you get out.
The sum
Amount at risk divided by the stop distance gives how many ounces or barrels you can hold. Divide that by your broker's contract size to get lots. The trading calculator on this site does this for you.
Contract sizes differ
A standard gold lot is often 100 ounces and an oil lot 1,000 barrels, but brokers vary, and some trade in units or dollars instead. Always check your own broker's numbers. Spreads, fees and overnight charges also add to the cost.