Forex glossary
Position Sizing
Position sizing selects quantity from a planned cash-risk budget and assumed loss per unit. It requires a capital base, exit rule, costs and instrument volume increments. An ordinary stop does not guarantee the exact loss; 1% is an example rule, not a requirement or safety guarantee.
Illustrative example
How does it work in practice?
A hypothetical plan budgets 100 USD risk with 2.50 USD loss per unit at exit and no other costs. Size is 40 units; at 5 USD loss per unit, it falls to 20.
A case to work through
Increments of five units
Model: budget 70 USD, loss 3 USD/unit, quantities in increments of 5 units, no other costs.
- The theoretical quantity is 70/3 ≈ 23.33.
- 20 units budgets 60 USD; 25 budgets 75 USD and exceeds the limit.
What follows? Choose an allowed quantity within the plan or skip the trade.
Example boundary: An ordinary stop does not guarantee the actual loss limit.
Volume increment and budget
Text description of the diagram
- Theoretical quantity: 70/3 ≈ 23.33 units.
- Allowed 20: 20 × 3 = 60 USD planned loss.
- Allowed 25: 25 × 3 = 75 USD, above budget.
A useful distinction
Position Sizing / Position size (lot quantity)
Position size is the chosen quantity; position sizing is the process of selecting it.
Check your understanding
Check the risk budget after rounding quantity.
Show the answer and explanation
20 units
The plan is 80 USD; 25 units would require 100 USD.
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Related terms
Sources and documentation
- CME Group: Proper Position Size
The lesson links planned position size to the risk budget, stop distance and the contract's monetary value per price increment.
Document read: - MetaTrader 5: basic trading principles
Orders, deals and positions; FOK, IOC and partial-filling policies.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.