Position Size Before the Click

Second Officer · SO03: Money Maths: Profit, Size and Margin · About 25 minutes

Safety rule: Calculate size from risk; never decide risk from the size you would like to trade.

Your mission today

By the end you can calculate an order size from a fixed cash-risk limit, stop distance and actual contract specifications.

Before you start

Your SO03.1 gross/net ledger, a demo symbol specification, and a calculator. All prices and account balances below are imaginary teaching figures, not actual market data.

1. Understand the problem

Decide the affordable loss first

Before a plane leaves, its load is checked against a limit. Trading volume should be treated the same way. Start by writing the most cash your plan allows you to lose if the stop fills as intended. This is your planned cash-risk limit, not a guarantee of your final loss.

Next find a meaningful stop level. A stop is a price condition beyond which your trade idea no longer qualifies. Measure the distance from the likely executable entry, including the correct Bid or Ask side. Only after those steps do you calculate the volume. If your result is below the broker's minimum volume, the answer is SKIP, not an invitation to widen a stop.

2. Worked example: show the loss first

Imagine a fictional EURUSD contract worth $10 per pip for 1.00 lot. A long would enter at Ask 1.0842 and has a planned stop at Bid 1.0827. The distance is 15 conventional pips.

At 1.00 lot, the planned price loss would be 15 × $10 = $150. You allow $10 total planned risk, of which $1 is reserved for estimated trading costs. Price loss budget: $10 − $1 = $9.

Divide $9 by $150 per full lot = 0.06 lots. With an allowed 0.01 step, 0.06 is valid. Planned price risk is $9 and cost allowance $1, totalling $10. A 0.07 lot order would risk $10.50 before fees, already exceeding the limit. These are imaginary contract values, not a broker quote.

Original Black Box Journey diagram. Imaginary training figures; not a real historical trade.

3. Apply the idea

Round down, never up

A calculation might return 0.0667 lot. That number may not be a permitted order size. If the platform allows increments of 0.01 lot, round down to 0.06. Rounding to the nearest increment could breach your limit.

Check the minimum and maximum volume, the maximum number of decimals permitted and any per-order restrictions. Some symbols require a minimum stop distance. Do not assume you can place a stop at any price. If a lot calculation produces a size that cannot be traded under the rules, record REJECTED with the reason.

4. Test the limitations

Costs and fast moves make planned risk uncertain

An actual stop fill may occur beyond the stop trigger. A spread can widen. Financing and conversion can change the final cash result. When building a real plan, specify a realistic cost allowance and a stress scenario based on evidence, not a magic number.

Do not shrink the stop merely to fit a larger lot. A stop belongs at the level that invalidates the setup. A very tight stop at an arbitrary price simply changes the strategy being tested. Your task is to choose an affordable size or refrain from trading.

5. Record a defensible decision

Read the decision out loud

Ask: What is my legal instrument? What is the contract size? Which executable quote would fill the entry? Where does the idea fail? How many price units lie between? How much money could that move cost? What volume step does my broker allow? What if the fill is worse?

Writing those answers before clicking is a pre-flight habit. If a required field is UNKNOWN, the calculation cannot honestly produce an order ticket. Use a demo calculator as a cross-check, not as a substitute for understanding units.

Common mistake

Choosing 0.10 lot because it looks small reverses the calculation. The same 0.10 lot can create very different exposure across instruments. Fix it by starting from cash risk and the exact contract multiplier.

Plain-English glossary

• Cash-risk limit: The amount the plan allows for a planned loss.
• Stop distance: Difference between intended entry and invalidation level.
• Position size: Contract volume chosen for an order.
• Volume step: Smallest permitted increment of lots.
• Slippage: Difference between intended and executed price.

Try it yourself

Calculate ten hypothetical order tickets using different stops, spreads and volume steps. Include one instrument whose minimum volume is too large. For each ticket, show the raw units, cash risk, allowance, rounded volume and ACCEPT or SKIP result. Keep the original inputs and your final result together in your student journal.

What you can now do

• Find the stop before the trading volume.
• Size using contract units and cash-risk allowance.
• Round down or skip when the broker's size is too large.

Next lesson

SO03.3 · Margin Is Not Maximum Loss. Read it after completing the worksheet above, not just after reading the headings.