Risk Per Trade: How to Calculate Position Size, With Examples
The position size formula from your risk per trade, worked examples for a leveraged USDT perpetual and an MT5 forex lot, and what losing streaks cost.
Risk per trade is the amount you lose if your stop loss is hit. You choose it before you enter, and the position size follows from it, not the other way round. Below are the formula and two worked examples: a USDT perpetual futures trade on a crypto exchange and a currency pair in MetaTrader 5.
What is risk per trade?
Risk per trade is the share of your account you are prepared to lose on one trade. In money, that amount is called 1R, where R stands for risk. The most quoted rules of thumb are the 1% rule and the 2% rule: never lose more than 1% or 2% of the account on a single trade.
Risk is not the size of the position. Risking 1% of a 10,000 USDT account means losing at most 100 USDT if the stop is hit. The position itself can be worth 5,000 USDT or more; how much depends on where the stop is.
Some traders risk a fixed fraction of the current balance, others a fixed dollar amount. With a fixed fraction the risk shrinks after losses and grows after wins: once a 10,000 USDT account drops 10% to 9,000, 1% is 90 USDT. A fixed dollar amount is simpler to track but does not slow you down in a drawdown.
Position size formula
First decide how much of the account you will risk. Then place the stop where the trade idea stops working. The distance from entry to stop is the loss per unit of the asset, for example per bitcoin. Divide one by the other.
Risk ($) = Account balance × Risk per trade (%)
Position size = Risk ($) ÷ |Entry price − Stop price|The absolute value covers both directions. For a long the stop is below entry; for a short it is above. A short BTCUSDT at 62,500 with a stop at 63,750 has the same 1,250 distance and the same size as the long below.
Order matters. If you pick the size first and then fit the stop to it, every trade carries a random amount of risk.
Example: USDT perpetual futures with leverage
The account is 10,000 USDT and the risk per trade is 1%. You buy BTCUSDT at 62,500 with a stop at 61,250. The stop is 1,250 USDT per bitcoin away: 2% of the entry price.
- Risk: 10,000 × 1% = 100 USDT.
- Position size: 100 ÷ 1,250 = 0.08 BTC.
- Position value: 0.08 × 62,500 = 5,000 USDT.
- Check: at the stop you lose 0.08 × 1,250 = 100 USDT.
On Binance and Bybit the size of a USDT perpetual is set in coins: 0.08 BTC. On OKX it is set in contracts. One BTC-USDT-SWAP contract is 0.01 BTC, so 0.08 BTC is 8 contracts.
Fees come on top. At 0.05% on entry and on exit that is another 4.95 USDT: 2.50 on entry and 2.45 on the exit at the stop. A market stop can also fill worse than its price; this is called slippage.
Does leverage change your risk?
Leverage decides how much margin the exchange locks for the position. This initial margin is the position value divided by the leverage. Profit and loss are calculated differently: position size × price move. Leverage is not in that formula.
| Leverage | Margin | Loss at the stop |
|---|---|---|
| 5x | 1,000 USDT | 100 USDT |
| 10x | 500 USDT | 100 USDT |
| 20x | 250 USDT | 100 USDT |
High leverage does not make the loss bigger; it frees up money. The temptation to open a bigger position than the calculation allows is where leverage really raises risk.
In cross margin the whole account balance backs the position. Liquidation is further away, but all the money in the account is at stake.
Forex example: lot size in MetaTrader 5
In forex, size is measured in lots. How many units of currency one lot holds is in the instrument's specification, in the Contract size field. For EURUSD it is usually 100,000 euros. Smaller sizes have their own names: 0.1 lot is a mini lot (10,000 units) and 0.01 lot is a micro lot (1,000 units). In MetaTrader 5 you open the specification from the Market Watch window: right-click the symbol and choose Specification.
Price moves are counted in pips. For most pairs a pip is the fourth decimal place, 0.0001. For pairs with the Japanese yen it is the second, 0.01. If EURUSD is quoted with five decimals, the price step is 0.00001 and one pip holds ten of these steps. MetaTrader 5 calls such a step a point.
MetaTrader 5 calculates forex profit as (close price − open price) × contract size × lots. So one pip on one lot of EURUSD is worth 100,000 × 0.0001 = $10.
Lots = Risk ($) ÷ (Stop in pips × Pip value per lot)An example. The account is $10,000 and the risk is 1%, so $100. You buy EURUSD at 1.0850 with a stop at 1.0820. The stop is 30 pips away.
- Loss of one lot at the stop: 30 × $10 = $300.
- Lots: 100 ÷ 300 = 0.333. Round down to the volume step: 0.33 lots.
- Check: 0.33 × 30 × $10 = $99.
The volume step is in the specification too. Round down so the risk stays within 1%.
Here, too, leverage only changes the margin. MetaTrader 5's help gives forex margin as lots × contract size ÷ leverage. At 1:100 the margin for 0.33 lots is 330 euros; at 1:500 it is 66 euros. The loss at the stop is $99 either way.
If the account currency differs from the quote currency, convert the pip value at the current rate. On USDJPY one pip on one lot is worth 1,000 yen. At a rate of 150 that is about $6.67. A 40-pip stop and $100 of risk give 100 ÷ (40 × 6.67) ≈ 0.37 lots.
How much should you risk per trade? Losing streaks in numbers
Losses come in streaks, even for a profitable system. Suppose trades are independent and half of them win. Then over 100 trades a streak of 6 or more losses in a row happens with a probability of about 55%, and one of 8 or more about 17%. If 4 trades in 10 win, a streak of 8 or more losses over 100 trades turns up almost every other time: 49%.
How much of the account a streak takes when you always risk the same share of the current balance:
| Risk per trade | 5 losses in a row | 10 losses in a row | 20 losses in a row |
|---|---|---|---|
| 0.5% | −2.5% | −4.9% | −9.5% |
| 1% | −4.9% | −9.6% | −18.2% |
| 2% | −9.6% | −18.3% | −33.2% |
| 5% | −22.6% | −40.1% | −64.2% |
| 10% | −41.0% | −65.1% | −87.8% |
Winning back a loss is harder than losing it. After a 20% drawdown you need a 25% gain; after 50%, a 100% gain. At 1% risk the account halves only after 69 losses in a row; at 10% risk, after seven.
Whatever number you pick, check it in practice: the result in R of every trade in your trading journal shows whether your real losses match the risk you planned.
Key takeaways
- Size from the stop. Stop and dollar risk first, then position size. Leverage last, and low enough that liquidation sits well beyond the stop.
- Stress-test your risk. Find it in the table and answer honestly: could you sit through 10 losses in a row?
Sources
- Bybit: P&L Calculations (USDT Perpetual and Expiry Contracts): P&L of a linear contract is quantity × price move, leverage does not multiply it, initial margin is value ÷ leverage.
- Binance: How to Calculate Profit and Loss for Futures Contracts: USDⓈ-M sizes are in coins; P&L and initial margin formulas.
- Binance: Leverage and Margin of USDⓈ-M Futures: maintenance margin and liquidation.
- OKX API: BTC-USDT-SWAP instrument: contract value 0.01 BTC.
- MetaTrader 5 Help: Market Watch: the symbol specification, contract size and volume step.
- MetaTrader 5 Help: Margin Calculation (Retail Forex, Futures): margin = lots × contract size ÷ leverage.
- MQL5 Reference: Symbol Properties: forex profit = (close − open) × contract size × lots.
- IG: Pip definition: a pip is 0.0001, or 0.01 for yen pairs.
- CMC Markets: Lot Size in Forex: standard, mini and micro lots and their pip values.
- Van Tharp Institute: A Short Lesson on R and R-Multiples: R as the risk set by the initial stop.
