How to Use a Position Size Calculator

A position size calculator, in five lines

A position size calculator is a small tool that turns a money amount into a lot size, where a lot is 100,000 units of the currency. Four numbers go in: the account size, the share of it you are willing to lose on the trade, the stop distance in pips, where a pip is the fourth decimal place of the price, and the pair. One number comes out: the lot size at which that stop distance costs exactly that money. The arithmetic is money divided by pips times the value of a pip at one lot. For a 10,000 account, 1 percent and a 20-pip stop on the euro the answer is 0.50 lot; at 40 pips it is 0.25, and at 10 pips it is 1.00.

A fuel pump on preset

Picture a fuel pump with a preset amount. The driver types the money first, 100, and the pump works out the litres from the price per litre and stops there. The litres are never chosen; they follow. A position size calculator is that pump. The money, one percent of a 10,000 account, is fixed first; the price per litre is the stop distance, because each pip of stop costs money at any size; and the lot size is whatever that money buys at that price. The dearer the litre, the wider the stop, the fewer lots for the same 100.

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