Definition
The order of decisions is what matters: first the risk per trade (say 1% of the account), then the stop distance from the chart, and only then the position size that makes those two agree. Size = risk amount ÷ (stop distance in pips × pip value). Traders who pick the lot size first and fit the stop to it are sizing their risk by accident.
Example
Account 5,000; risk 1% = 50. Stop 25 pips on EUR/USD, pip value about $1 per mini lot. Size = 50 ÷ (25 × 1) = 2 mini lots, i.e. 0.20 lots.
Common questions
Why 1% and not more?
Because losing streaks are normal. Ten losses in a row at 1% cost about 10% of the account; at 5% they cost 40%, and the account needs a 67% gain just to recover.
Related terms
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Part of the academy's trading glossary. All terms · Updated 17 October 2026