Risk management and position sizing: a guide with examples
Deciding how much to risk per trade matters more than any entry signal. A simple rule can stop a bad streak from wiping out your account.
Risk a fixed percentage of your balance
The most common rule is to risk 0.5% to 2% of your balance per trade. With $10,000 and 1%, your maximum risk per trade is $100. If you lose, you lose $100, not “whatever it takes”.
Work out the lot size from the stop
Position size = money to risk ÷ (distance to stop × value per point). Gold example: you risk $100 and your stop is $10 away; with a 100-ounce contract per lot, 1 lot loses $1,000 over those $10, so the correct size is 0.10 lots. A simulator with a “lot from my risk” button does this for you.
Think in R multiples
One R is what you risk on a trade. Winning twice what you risked is +2R; hitting the stop is −1R. Measuring in R lets you compare trades of different size and see whether your strategy has positive expectancy.
Rehearse your risk management on real data with a built-in lot calculator. Free, no card.
Expectancy
Expectancy = (win rate × average win in R) − (loss rate × average loss in R). With a 40% win rate and 2R winners, expectancy is 0.4×2 − 0.6×1 = +0.2R per trade. With 60% but 0.5R winners, it is 0.6×0.5 − 0.4×1 = −0.1R.
Test your plan with no risk
Before using a position size with real money, rehearse it over hundreds of simulated trades. You will see how your equity curve behaves in losing streaks and whether the maximum drawdown is bearable for you.
Frequently asked questions
What percentage of my balance should I risk per trade?
A common reference is between 0.5% and 2%. The smaller it is, the more losing streaks you can absorb without your account suffering too much. This is a general educational guideline, not personalised advice.
What is an R multiple?
It is the result of a trade expressed in multiples of what you risked. If you risk $100 and make $200 you have gained +2R; if your stop is hit you have lost −1R. Measuring in R lets you compare trades of different sizes.
Why does expectancy matter?
Because it combines your win rate with the average size of your wins and losses and tells you whether, in the long run, your strategy wins or loses per trade. A high win rate is useless if the losses are much larger than the wins.
Rehearse your risk management on real data with a built-in lot calculator. Free, no card.
Keep reading
Educational content using historical data. It is not financial advice or a promise of results: past results do not guarantee future results.