Risk per trade and lot size
Lesson 7 of 12 in the course “Prop Trading”. Free, with animations and a quiz.
Risk in percent
Experienced traders don’t think “how much will I make”, they think “how much will I lose if the stop hits”. The working norm at a prop firm is 0.5–1% of the account per trade: $500–1,000 on $100,000. Then even five stops in a row is −2.5–5%, and the account survives. At 2%, the same five stops eat the entire overall limit.
Lot size from the stop
Position size comes from the stop, not from a guess. EUR/USD: 1 standard lot is about $10 per pip. Risk $500, stop 20 pips: 500 / (20 × 10) = 2.5 lots. Wider stop, smaller lot, same dollar risk. Brainax has a lot calculator for exactly this.
Gold works differently
For gold (XAU/USD) 1 lot is 100 ounces, so a $1 price move is $100. A $5 stop with $500 risk: 500 / (5 × 100) = 1 lot. Indices and oil have their own contract sizes. So use the platform’s calculator or the instrument spec, not your memory.
The target in R
R is the size of your risk on a trade. A 2R target with $500 risk is +$1,000. If the target is twice as far as the stop, winning a third of trades is enough to break even. To make money you need a bit more. A good trade has a target at least 1.5–2 times farther than the stop.
Leverage isn’t risk
At a prop firm leverage ranges from 1:30 to 1:100, but it only allows you to open a position of the size you need. The stop and the lot set the risk. You can trade at 1:100 with 0.5% risk, or lose 5% on a single trade at 1:10 if the stop is far and the lot is big. Watch your dollar risk, not the leverage.
Check yourself
- Risk $500, a 25-pip stop on EUR/USD, $10 per pip per lot. What lot size?
Correct answer: 2 lots. 500 / (25 × 10) = 2. If the stop hits, the loss is exactly $500. - Mira wants to risk $1,000 with a $10 stop on gold. How many lots?
Correct answer: 1 lot. 1 lot of gold is $100 per $1. A $10 stop is $1,000 per lot, exactly her risk. - What actually sets a trade’s risk?
Correct answer: The distance to the stop and the lot size. Loss at the stop = distance to stop × value per move × lot. Leverage isn’t in the formula.