What Is Position Size in Trading? Definition, Calculation, and Examples

Definition:
Position size is the number of units (lots, shares, or contracts) a trader buys or sells in a trade. It determines the risk exposure and the potential profit or loss.

Explanation:
Position sizing is a core part of risk management. Even the best strategy can fail if the position size is too large compared to the trading account.

In Forex, position size is measured in lots:

• 1 Standard Lot = 100,000 units of base currency
• 1 Mini Lot = 10,000 units
• 1 Micro Lot = 1,000 units

In stocks, it refers to the number of shares purchased.
In futures or cryptocurrency, it refers to the number of contracts or tokens traded.

🧮 Plain-Text Formula (Web-Safe)

Position Size = Account Risk per Trade ÷ (Stop Loss × Value per Pip)

Steps to Calculate:

1. Decide how much you are willing to risk per trade (e.g., 1–2% of your account).
2. Set your stop-loss level (pips or price units).
3. Find the pip or tick value for the instrument.
4. Divide the risk by (stop-loss × pip value) to get the correct size.

Example (Forex):

• Account Balance = $5,000 → 2% Risk = $100
• Stop-Loss = 50 pips
• Pip Value for 1 lot EUR/USD = $10
• Position Size = 100 ÷ (50 × 10) = 0.20 lots

So the correct position size = 0.20 lots (20,000 units).

🌍 Why Position Size Matters

• Prevents overexposure and large losses
• Keeps risk consistent across trades
• Essential for long-term survival and growth

Related Terms: Risk Management, Lot Size, Leverage, Stop Loss, Exposure
Category: Trading / Risk & Position Management

FastPip Tip: Never guess your position size—calculate it before every trade. Proper sizing can make the difference between blowing an account and growing it.

📣 Related Resources from FastPip

✅ Follow disciplined traders on our Copy Trading Platform
✅ Use Forex Signals with suggested position sizes
✅ Read our Blog for tutorials on position sizing and calculators