Risk-Based Position Sizing from Stop Distance and Contract Rules
Summary
The document explains a position sizing calculator that converts a trader’s risk budget and stop-loss distance into a proposed lot size. The budget may be specified as a fraction of account equity or a fixed account-currency amount. The calculator uses the instrument’s tick size and tick value to estimate the monetary risk per unit, then applies its minimum, maximum, and volume-step constraints.
It rounds the calculated size down to the permitted volume increment and reports the resulting risk. It also estimates margin for the intended direction and flags cases where free margin is insufficient, the minimum tradable size would exceed the risk budget, or the maximum size constrains the result. The description says it can be used with instruments that provide valid contract specifications, including currency pairs, metals, and indices. It describes a calculation aid rather than a trading system: no order placement, performance testing, or account-specific validation is presented. Risk estimates depend on the supplied stop and accurate instrument specifications.
Key ideas
- A risk budget and stop distance determine the starting position size.
- Tick size and tick value translate price movement into monetary risk.
- Rounding down to the volume step helps keep estimated risk within budget.
- Margin checks and symbol limits can constrain or invalidate a proposed size.
- The calculator reports a size but does not place trades.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.