Position sizing
Position sizing is deciding how much to trade — how many lots, contracts, or shares — so that a losing trade costs a planned fraction of your account instead of an accidental one.
The standard method is fixed-fractional: risk a set percentage per trade, commonly 0.25–1%. The size then follows from the stop: size = (account × risk %) ÷ (stop distance × pip value per lot). The stop comes first and the size is derived from it, never the other way around.
Sizing is the main control you have over account survival. Two traders with identical entries and exits can finish with opposite outcomes purely through size, because oversized losing streaks compound against a shrinking base and are difficult to recover from.
Example
Account $10,000, risk 1% = $100, EURUSD stop 25 pips. Required pip value: $100 ÷ 25 = $4 per pip. At $10 per pip per standard lot, that is 0.40 lots. If the stop is hit: 25 × $4 = $100, exactly the planned risk.
In a prop-firm challenge
The rules make sizing arithmetic explicit. With a 5% daily loss limit and a 10% max drawdown, risking 1% per trade means five straight full losses end the day and ten end the account — inside a normal losing streak for many strategies. Sizing at 0.5% doubles that headroom, which is why most guidance for evaluations leans small; see risk management for funded traders.