Position Sizing for Dummies: Stop Guessing Lot Sizes

Right then. Let’s talk about the thing nobody wants to discuss at the trading desk: position sizing. Not sexy, is it? Nobody’s posting TikToks about it. No one’s selling a £997 course called “The Position Sizing Secrets They Don’t Want You to Know.” And yet, here we are.

I’ve been trading for nearly two decades, and I can tell you with absolute certainty that position sizing is the single most ignored variable separating profitable traders from the broke ones. It’s not indicator stacking. It’s not news trading. It’s not even “finding the golden setup.” It’s position sizing. Full stop.

The Great Delusion

Let me paint you a picture. It’s 2017. I’m at a bar in Canary Wharf with a mate who’s just started trading. He’s been at it for three weeks. Three weeks. He’s telling me about his “system”—some nonsense involving moving averages and Fibonacci retracements that he learned from a YouTube bloke with questionable hair.

I ask him: “What’s your position size?”

He looks at me like I’ve asked him to recite Shakespeare backward.

“What do you mean?” he says. “I just, you know, trade what feels right.”

What. Feels. Right.

I finished my pint and walked out. He blew his account three weeks later. Shocking, absolutely shocking.

This is the story of 95% of retail traders. They spend countless hours tweaking their indicators, watching price action, reading the charts like they’re deciphering ancient runes—all while completely winging it on the most critical decision: how much to risk per trade.

The Math Nobody Likes to Do

Here’s where most people’s eyes glaze over. Position sizing is mathematics. Real mathematics. Not the “well, I’ll just buy a micro lot and see what happens” variety.

Let’s establish the formula that should be tattooed on every trader’s forehead:

Position Size = (Account Risk in Currency) / (Stop Loss in Pips × Pip Value)

Sounds intimidating? It’s not. Let me break it down for the truly lost.

You’ve got a £10,000 account. You decide (and this should be decided rationally, not emotionally) that you’ll risk 1% per trade. That’s £100 per trade maximum.

You’re looking at GBP/USD. Your stop loss is 50 pips away. One pip in this pair is worth approximately £0.0001 per standard lot (100,000 units).

So: £100 / (50 × £0.0001) = £100 / £5 = 0.2 standard lots = 2 micro lots.

There. That’s your position size. Not guessed. Not felt. Calculated.

And you know what? That boring calculation just saved your account from a 50-pip loss turning into a 5,000-pip catastrophe.

The Percentage Rule (My Personal Favourite)

Look, I’ve seen traders use all sorts of complicated formulas. Kelly Criterion, Optimal f, some proprietary nonsense they claim their hedge fund uses. At the end of the day, they’re all variations of the same theme: don’t risk more than you can afford to lose on a single trade.

I’m old-fashioned. I use the percentage method. Every trader should.

Risk no more than 1-2% of your account per trade.

Full stop. That’s it. That’s the whole thing.

If your account is £10,000, you risk £100 to £200 per trade. If it’s £1,000, you risk £10 to £20. If it’s £50,000, you risk £500 to £1,000.

“But that’s so small!” you cry. “I’ll never get rich on that!”

No, you won’t. But you also won’t blow your account on a Wednesday afternoon when NFP doesn’t go your way and you panic-average down like a complete numpty.

Wealth in trading is built slowly. Or rather, it’s preserved slowly, and profits come from not losing it. The traders making six figures aren’t the ones taking 50% risks on single trades. They’re the ones who’ve been compounding 2% monthly gains for five years.

The Psychology They Won’t Tell You

Here’s the insidious thing about proper position sizing: it removes the emotional temperature from trading.

When you’re properly sized, a loss stings a bit. A ten-loss streak stings a bit more. But your account survives. You don’t lie awake at night. You don’t wake up covered in cold sweat wondering if your landlord’s going to evict you.

When you’re oversized, every trade becomes life or death. The anxiety spikes your cortisol. You start second-guessing stops. You move them “just a bit further” to give the trade “room to breathe.” Suddenly, a 50-pip stop becomes a 150-pip catastrophe.

I’ve seen traders with 55% win rates blow accounts. And I’ve seen traders with 40% win rates build seven-figure portfolios. The difference? One sized correctly. The other didn’t.

The Tool That Changes Everything

This is where you lot come in. A proper position sizing calculator removes the guesswork entirely. You input:

• Account size
• Risk percentage
• Stop loss distance (in pips)
• Currency pair

It spits out the exact position size. No debate. No feelings. Pure mathematics.

It’s not glamorous. It doesn’t make for a compelling Instagram post. But it’s the difference between “I’m a trader” and “I’m a trader who still has money.”

The Final Word

Position sizing isn’t just risk management. It’s the foundation of a sustainable trading career. It’s the difference between being a gambler and being a professional.

So here’s my advice: get yourself a calculator. Learn the formula. Commit to your risk percentage. And for God’s sake, stop guessing lot sizes like you’re picking numbers for the lottery.

Your future self—the one with a trading account that hasn’t been decimated—will thank you.

Now stop reading blog posts and go sort out your position sizing.

Cheers.