Position Size Formula

The Position Size Formula

This formula ensures you never risk more than your predetermined percentage on any single trade. It is the foundation of professional risk management and is used by institutional traders worldwide.

Variable Breakdown

Account Balance — Your total trading capital (e.g., $10,000)

Risk Percentage — The fraction of your account you are willing to lose on this trade (typically 1-2%). Expressed as a decimal: 1% = 0.01

Stop Loss Pips — The distance from your entry to your stop loss, measured in pips

Pip Value per Lot — How much one pip of movement is worth for one standard lot. This varies by instrument:

• EURUSD: $10 per pip per lot (pip_size=0.0001, contract=100,000)
• USDJPY: ~$6.50 per pip per lot (varies with exchange rate)
• XAUUSD: $1.00 per pip per lot (pip_size=0.01, contract=100 oz)
• BTCUSD: $0.01 per pip per lot (pip_size=0.01, contract=1 BTC)

Worked Example: XAUUSD

Risk Amount = $10,000 x 0.01 = $100
Pip Value per Lot = 0.01 x 100 = $1.00
Lots = $100 / (50 x $1.00) = 2.00 standard lots
Risk Amount = 2.00 x 50 x $1.00 = $100 ✓

Worked Example: EURUSD

Risk Amount = $5,000 x 0.02 = $100
Pip Value per Lot = 0.0001 x 100,000 = $10.00
Lots = $100 / (30 x $10.00) = 0.33 standard lots
Risk Amount = 0.33 x 30 x $10.00 = $99.00 ≈ $100 ✓

Python Implementation

from gfil_calculators.position_size import calculate_position_size

# XAUUSD example
result = calculate_position_size(10000, 1.0, 50, "XAUUSD")
print(f"Lots: {{result['lots']}}, Risk: ${{result['risk_amount']}}")
# Output: Lots: 2.0, Risk: $100.0

# EURUSD example
result = calculate_position_size(5000, 2.0, 30, "EURUSD")
print(f"Lots: {{result['lots']}}, Risk: ${{result['risk_amount']}}")
# Output: Lots: 0.33, Risk: $99.0