Position Size
The exact amount of an asset or lots to trade based on a predefined risk limit.
Plain-English Meaning
Position sizing is the math you do before a trade to answer the question: "How much should I buy so that if I am wrong, I only lose exactly what I am willing to lose?" It connects your account balance, risk percentage, and stop loss.
Why It Matters
Proper position sizing protects your trading capital from large, unexpected losses. It is the mathematical foundation of consistent risk management.
Simple Example
If you have a $5,000 account and only want to risk 1% ($50) on a trade with a 20-pip stop loss, position sizing tells you the exact lot size to use to ensure your loss is capped at $50.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Guessing the position size or using the same lot size for every trade regardless of the stop loss distance.