CFD Position Sizing from Contract Size, Point Value, and Stop Distance
Summary
This guide explains why a CFD lot is not a consistent measure of exposure across instruments. It recommends checking contract size, point value, notional value, margin, leverage, stop distance, and trading costs before entering a trade. Its central sizing method starts with the loss a trader can accept and the price level that invalidates the trade idea, then calculates position size from stop distance and point value.
Worked examples show how theoretical losses scale with lot size and adverse price movement, and how a small margin requirement can still represent substantial market exposure. The article also notes that forex, index, commodity, and stock CFDs have different contract conventions and volatility drivers. Its calculations exclude costs and execution effects such as slippage, and the supplied text is truncated during the section on the recommended trading process. The examples illustrate arithmetic rather than establish a universally appropriate risk limit; actual contract terms must be checked for each instrument and platform.
Key ideas
- A lot is a contract unit, so its monetary risk varies across instruments.
- Estimate trade risk from stop distance, point value, and number of lots.
- Notional exposure, rather than posted margin alone, determines price sensitivity.
- Choose the acceptable loss and invalidation point before calculating position size.
- Allow for costs, slippage, gaps, and instrument-specific contract specifications.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.