What Is Position Sizing

One size, worked out

Position sizing is working out how many lots to trade so that the trade reaching its stop loses exactly the money set for it. Take gold at 4338.28, its close on 17 December 2025. Three numbers go in: the money the trade may lose, 100 dollars, one per cent of a 10,000-dollar example account; the distance to the stop, 20 dollars an ounce, an example; and what one dollar of movement is worth at one lot, 100 dollars, because a lot of gold is 100 ounces. The size is the money divided by the distance times the step, 100 over 2,000, or 0.05 lot. The size is never chosen. It is the answer.

A weight limit on a bridge

Picture a bridge with a weight limit on a sign at its end. The bridge was built first, the sign says what it will carry, and the lorry is loaded to the sign; nobody builds the lorry and then hopes the bridge holds. Position sizing is that order of things. The account's limit is the sign, one per cent here; the distance to the stop is the span; and the size is the load, worked out so that the trade going to its stop weighs exactly what the sign allows. A bigger lorry does not change the sign. It changes whether the bridge is crossed at all.

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