The order of operations everyone gets wrong
The instinct is: decide to trade one mini lot (or one standard lot), enter, and then put a stop somewhere that "looks about right." That makes your risk an accident — a side effect of a lot size you chose for no good reason. The professional order is the exact reverse:
- Find where the trade is wrong. The stop goes at the structural level that invalidates the idea (below the support you bought, beyond the level that broke). The chart decides the stop, not your wallet.
- Decide what that's worth risking. A fixed, small fraction of equity — the 1–2% rule.
- Solve for size. The position size is whatever makes the distance to that stop cost exactly that fraction.
Size is an output, never an input. Get the order right and your risk is identical on every trade regardless of how wide or tight the stop is — which is the entire point.
Risk amount = equity × risk %.
Position size (lots) = risk amount ÷ (stop in pips × pip value per lot).
Everything you need is in that second line: the cash you'll risk, the distance to your stop, and the pip value of the pair.
Two worked examples
EUR/USD, $10,000 account, 1% risk, 25-pip stop. Risk amount = $10,000 × 1% = $100. EUR/USD is $10 per pip per standard lot. Size = 100 ÷ (25 × 10) = 0.40 lots (four mini lots). If the stop is hit, you lose $100 — 1% — exactly as planned.
USD/JPY, $5,000 account, 2% risk, 50-pip stop. Risk amount = $5,000 × 2% = $100. USD/JPY is roughly $6.50 per pip per standard lot at current rates. Size = 100 ÷ (50 × 6.50) = 0.31 lots. Note that you had to use the real pip value — assume the wrong $10 and you'd oversize by more than a third.
Why "fixed-fractional" is the survivable choice
Risking the same percentage every trade — fixed-fractional sizing — has a property that keeps you alive: your position size automatically shrinks as your account shrinks and grows as it grows. After a string of losses you're risking 1% of a smaller number, so each subsequent loss is smaller in dollars; the drawdown decelerates instead of accelerating. It's the mathematical opposite of the martingale "double after a loss" instinct that blows accounts up. This is what makes a 10-loss streak a 9.6% dip rather than a 65% disaster.
Both are defensible. 1% is the conservative default — at 1% per trade, even a brutal losing streak stays in the shallow, easily-recovered part of the drawdown curve. 2% is the upper bound for most retail accounts; beyond it, a normal streak does real damage. When in doubt, the smaller number is the right one. You can't be stopped out of the game at 1%.
If it rounds to zero, skip it
Sometimes the formula returns a size below your broker's minimum tradeable lot. New traders treat that as a problem to round up past — and in doing so, they take on more risk than their rule allows. The correct reading is the opposite: if your risk rule can't fund even the minimum position, the trade is too big for your account, and the answer is to stand aside. A trade you can't size correctly is not a trade. Shrinking the stop to make the size "work" just moves your invalidation to a place the chart didn't choose — that's not sizing, it's wishful thinking.
The temptation on a "really good" setup is to risk 3% or 4% "just this once." That single exception is how disciplined traders become undisciplined ones. The rule is the rule precisely because your conviction is least reliable when it's highest. Size the same way on the trade you love and the trade you merely respect.
Size it yourself
The calculator below takes your account size, risk percentage, stop distance, and pair, and returns the exact position size. Change the stop distance and watch the size move to keep your dollar risk constant — that compensating motion is correct position sizing.
This is Lesson 7-2 in long form
The 1–2% rule and position sizing — with the calculator and a quiz gate at 70% — is free in the course. Series 1 is free to read; a free account unlocks all 44 lessons and saves your progress.