Calculating Position Sizes

Let’s Make It Easy with an Example

As always, we’ll walk you through this using a real-life example.

Meet Newbie Ned.

Why Position Sizing Matters

Back when Ned was just starting out, he made a classic rookie mistake—he traded way too big and ended up blowing his account. It was like watching a cowboy shooting from the hip—bold, reckless, and totally uncalculated.

Ned didn’t understand position sizing back then, and it cost him dearly.

Now older and wiser (well… at least a bit), he’s back in the School of Pipsology, determined to get it right—and to make sure you don’t make the same mistake.

We’re going to show you how to calculate the right position size based on your account balance, your risk tolerance, and your account’s currency.

Let’s go through two scenarios:

1. When your account is in the quote (counter) currency

2. When your account is in the base currency

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✅ Scenario 1: Account Currency = Quote Currency

Ned just deposited $5,000 into his USD-denominated trading account. He’s ready to trade EUR/USD using a swing trading strategy, risking about 200 pips per trade.

After his painful lesson, he now promises to risk no more than 1% of his account per trade.

Step-by-Step Calculation:

1. Calculate the dollar amount he’s willing to risk:

$$\$5,000\times 0.01=\$50$$

2. Divide that amount by the stop loss in pips:

$$\$50÷200\text{ pips}=\$0.25\text{ per pip}$$

3. Find the position size:
   We know that for EUR/USD, a mini lot (10,000 units) moves $1 per pip.

$$\$0.25\text{ per pip}÷\$1\text{ per pip per 10k units}=2,500\text{ units}$$

✅ Ned should trade no more than 2,500 units of EUR/USD on this setup to stay within his risk limit.

Simple enough, right?

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✅ Scenario 2: Account Currency = Base Currency

Now let’s say Ned has moved to the eurozone. He opens an account with a European broker and deposits €5,000.

He’s still trading EUR/USD with a 200 pip stop, and still wants to risk only 1% per trade.

Step-by-Step Calculation:

1. Risk in EUR:

$$€5,000\times 0.01=€50$$

2. Convert to USD (since EUR/USD is quoted in USD):

Let’s say EUR/USD = 1.5000.

$$€50\times 1.5000=\$75$$

3. Divide the dollar risk by the pip stop:

$$\$75÷200\text{ pips}=\$0.375\text{ per pip}$$

4. Calculate the position size:

$$\$0.375÷\$1\text{ per pip per 10k units}=3,750\text{ units}$$

✅ Ned should trade no more than 3,750 units of EUR/USD to stay within his 1% risk limit.

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Getting More Advanced (But Don’t Worry)

That wasn’t so bad, was it?

Things do get a little trickier when your account currency doesn’t match either the base or quote currency—but don’t panic. We’ll walk you through it, step-by-step, until calculating position size feels as easy as baking a cake.