Sizing Positions from Equity Risk and Stop-Loss Distance

Summary

The document presents a position-sizing method that converts a chosen percentage of account equity into a trade volume. It estimates the loss for one lot from the entry-to-stop distance, tick size, and tick value, then divides the allowed monetary risk by that estimate. The example applies the function to alternating buy and sell orders with stop-loss and take-profit distances set equally, and reports expected versus realized trade outcomes.

The implementation rounds volume to the broker's permitted step and clamps it to minimum and maximum lot limits. These mechanics can make actual risk diverge from the target: forcing a minimum lot can exceed the intended risk, and the displayed step calculation warrants review because it multiplies by the minimum lot rather than the volume step. The example uses random direction and does not establish a profitable strategy. Slippage, commissions, gaps, and broker-specific contract values also affect realized risk.

Key ideas

• The sizing rule sets a cash risk budget as a percentage of current account equity.
• Per-lot stop risk is estimated from stop distance, tick size, and tick value.
• The calculated volume is adjusted to the broker's allowed lot bounds and increments.
• Enforcing a minimum lot can cause the position to exceed the intended risk budget.
• The random-trading example demonstrates sizing mechanics, not strategy performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.