Position Sizing Explained: The Key to Forex Survival

What Is Position Sizing?

Position sizing refers to how much capital you allocate to a single trade. It's arguably the most important aspect of risk management — even more important than your entry or exit strategy.

Why Position Sizing Matters

Without proper position sizing, a single losing trade can wipe out a significant portion of your account. Professional traders typically risk 1-2% of their account on any single trade.

The 1% Rule

The 1% rule states you should never risk more than 1% of your trading account on a single trade. If you have a $10,000 account, your maximum risk per trade is $100.

Position Size Formula

Position Size = (Account Balance × Risk %) ÷ (Stop Loss in Pips × Pip Value)

Example: $10,000 account, 1% risk, 20 pip stop loss, $10 pip value: (10,000 × 0.01) ÷ (20 × 10) = 0.5 lots.