Two traders can take exactly the same trade, with the same entry, the same stop and the same target, and end the month in completely different places. The difference is usually not the analysis. It is how big each of them traded.
Position sizing answers one question: how many units should I buy or sell so that, if the stop is hit, I lose the amount I decided on and not a cent more?
Start from the loss, not the profit
Most beginners pick a size first, by habit or by gut, and only then look at where the stop is. That gets it backwards. The order that keeps an account alive is:
- Decide the risk per trade as a share of the account. Many traders use 1% or 2%.
- Find the stop on the chart, where the trade idea is proven wrong. (If you are not sure where that is, read what a stop-loss is, and where to put one.)
- Measure the distance from the entry to the stop.
- Divide the risk by the distance. That is your size.
The formula is one line:
Position size = money at risk ÷ distance to the stop
The chart decides the stop. The stop decides the size. Your feelings about the trade decide neither.
Three worked examples
Gold (XAUUSD)
- Account: $5,000. Risk per trade: 1% = $50
- Sell at 4,021, stop at 4,031. Distance: $10 per ounce
- Size: $50 ÷ $10 = 5 ounces
If the stop is hit, the loss is 5 × $10 = $50, exactly the 1% planned.
Forex (EURUSD)
- Account: $5,000. Risk: 1% = $50
- Buy at 1.0850, stop at 1.0820. Distance: 0.0030 (30 pips)
- Size: $50 ÷ 0.0030 = 16,667 euros, about 0.17 of a standard lot
Crypto (BTCUSDT)
- Account: $5,000. Risk: 1% = $50
- Buy at 70,000, stop at 68,600. Distance: $1,400 (2%)
- Size: $50 ÷ $1,400 = 0.0357 BTC, worth about $2,500
Notice the last one. The position is worth half the account, yet the risk is still only 1%, because the stop is 2% away. The value of a position and the risk in it are different numbers.
Where leverage fits in
Leverage changes how much margin a position ties up. It does not change how much you lose when the stop is hit. Size the trade from the stop first, then use leverage only to fit that size into your margin, not to make the size bigger. We explain the arithmetic in leverage, explained.
Why 1% feels too small, and why it is not
At 1% risk, ten losing trades in a row cost roughly 10% of the account. Losing streaks of that length happen to every trader sooner or later. At 10% risk per trade, the same streak takes about two thirds of the account, and you then need to roughly triple what is left just to get back to where you started.
Small risk per trade is not timid. It is what lets you take the next trade after a bad week.
Mistakes to avoid
- Same size on every trade. A stop that is twice as far away needs half the size.
- Moving the stop to make the size fit. The stop belongs where the idea fails, not where your preferred size works.
- Adding to a losing position. That quietly raises the risk past what you planned.
- Forgetting costs. Spreads and fees count towards the loss. In a fast market, a fill can be slightly worse than the stop level.
Putting it to work with a signal
Every signal on Zexca states an entry zone, a stop and three targets. That is everything the formula needs: decide your risk, measure entry to stop, and divide. The risk-to-reward ratio then tells you what each target is worth in multiples of that risk.
In short
Decide the loss first, let the chart decide the stop, and let the stop decide the size. Get that order right and a single trade can never do serious damage to the account, whatever the market does next.
Educational content, not investment advice. Trading carries risk, including the loss of capital.