Two traders with $5,000 accounts take the same gold trade with the same stop. One loses $48 when the stop is hit and the other loses $400, and the difference is a short calculation many beginners skip. Your risk is decided by two things: how far your stop is, and how big your position is. This lesson shows how to set the size so the stop costs exactly what you planned.
Before we start: what do you think?
You want to risk the same $50 on a trade, but your stop is now twice as far from your entry. What should you do with your lot size?
✗ Then a stop twice as far costs twice as much, so you would risk $100.
✗ That makes the risk four times bigger: twice the distance times twice the size.
✓ Right: twice the distance with half the size costs the same $50.
✗ It does: the money lost at the stop is the distance times the value per lot times your lots.
The formula in plain words
First, three terms:
- Lot: the unit used to measure . A is 1.00. Most let you trade in steps of 0.01 (a "micro lot").
- Stop distance: how far the price must move from your entry to hit your .
- Value per lot: how much money one lot gains or loses when the price moves by one unit.
The formula is:
Lots = (account × risk %) ÷ (stop distance × value per 1 unit of price move per lot)
In words:
- Work out your risk in money. For example, 1% of $5,000 is $50.
- Work out what the stop would cost if you traded 1 full lot.
- Divide the first number by the second.
- Round down to your broker's lot step (usually 0.01).
Always round down, never up. Rounding up means you risk more than your plan. Rounding down means you risk slightly less, which is fine.
Before you start, you need to know the . This is how many units of the market one lot represents. Common values are:
| Market | 1 standard lot | Money per price move, 1 lot |
|---|---|---|
| Gold () | 100 ounces | $1.00 move = $100 |
| EURUSD | 100,000 euros | 0.0001 move (1 ) = $10 |
So 0.01 lot of gold moves $1 for every $1.00 change in the gold price.
Brokers can differ. Some use a different contract size for gold or for other markets. Check the contract specification in your trading platform (usually under "symbol info" or "specification") before you use these numbers.
Quick check
How much does 0.01 lot of gold gain or lose when the gold price moves $1.00?
Worked example: gold
Worked example: Gold, 1% risk on a $5,000 account
Your account is $5,000 and you risk 1% per trade (a common rule of thumb, see The 1% rule).
- Risk in money: $5,000 × 1% = $50
- You plan to buy gold at 4,100.
- Your stop goes at 4,092, just below a recent swing low. (See Stop-loss basics on how to choose it.)
- Stop distance: 4,100 − 4,092 = 8.00
Now the cost of the stop for 1 lot:
- 8.00 × $100 per $1.00 move = $800 per lot
Divide:
- $50 ÷ $800 = 0.0625 lots
Round down to the 0.01 step: 0.06 lots.
Check the real risk:
- 0.06 × $800 = $48
That is a little under $50, which is what you want. If you had rounded up to 0.07, the risk would be $56, which is above your plan. And if you had skipped the calculation and guessed 0.50 lots, the same stop would cost 0.50 × $800 = $400, which is 8% of the account.
Worked example: The same gold trade with a wider stop
With a stop at 4,080 (a 20.00 distance), 1 lot would lose $2,000 at the stop. $50 ÷ $2,000 = 0.025, so you would trade 0.02 lots and risk $40.
A wider stop means a smaller position. The money at risk stays inside your limit.
Quick check
The formula gives 0.0625 lots and your broker's step is 0.01. What do you trade, and why?
Worked example: EURUSD
Worked example: EURUSD, 1% risk on a $5,000 account
Same account, same 1% risk: $50.
- You plan to buy EURUSD at 1.0850.
- Your stop goes at 1.0820.
- Stop distance: 1.0850 − 1.0820 = 0.0030, which is 30 pips. (A pip is the 0.0001 step in most currency pairs.)
The cost of the stop for 1 lot:
- 30 pips × $10 per pip = $300 per lot
You can also use the formula directly: 0.0030 × 100,000 units = $300. It is the same calculation.
Divide:
- $50 ÷ $300 = 0.1667 lots
Round down: 0.16 lots.
Check the real risk:
- 0.16 × $300 = $48
The $10 per pip figure is correct for pairs where the US dollar is the second currency (like EURUSD or GBPUSD) and your account is in US dollars. For other pairs, or for an account in euros, the pip value changes. Your platform or a calculator can show the exact value.
Quick check
When is "$10 per pip for 1 lot" correct?
Use our position size calculator
Doing this by hand once or twice is the best way to understand it. After that, a calculator saves time and avoids mistakes when you are under pressure.
Our free position size calculator asks for your account balance, risk percentage, instrument (gold or one of several major ), entry price and stop price. It shows the lot size, rounded down, and your real risk in money.
Try it here with the gold example: $5,000, 1% risk, entry 4,100, stop 4,092. You should see 0.06 lots and a real risk of $48.
A few habits that help:
- Calculate before every trade, not after. The size should be set before you press buy or sell.
- Recalculate when the balance changes. 1% of $4,800 is not the same as 1% of $5,000.
- Check margin as well. is the money your broker sets aside to keep the trade open. A correct lot size can still use a lot of margin if is high. (See Leverage in plain words.)
- Remember slippage. In fast markets your stop can fill at a worse price, so the real loss can be a little bigger than the calculation.
Quick check
Your balance falls from $5,000 to $4,800. What is your new 1% risk?
Key takeaways
- Lots = (account × ) ÷ (stop distance × value per 1 unit of price move per lot).
- Set the stop first, then calculate the size from that distance. Never the other way round.
- Always round down to the broker's lot step, so you never risk more than planned.
- For many brokers, 1 lot of gold is 100 ounces and 1 lot of EURUSD is 100,000 units. Check your own contract size.
Try this
Take a balance you would realistically trade, for example $2,000. Use 1% risk. Calculate the lot size for a gold trade with a 6.00 stop and a EURUSD trade with a 25 pip stop. Write down the rounded lot size and the real risk for each. Then check your answers with the position size calculator.