Position Sizing Across Instruments

What you will learn

• One general formula for position size that works in every market.
• How lots, pips and pip value work in forex.
• How to convert risk into euros when an instrument is priced in another currency.
• How contract size changes the calculation for CFDs.

Explanation

Every position size follows one idea:

Position size = risk in € ÷ risk per unit in €

The "unit" changes between markets. For shares it is one share. For forex it is one lot. For a CFD (contract for difference, a product that pays the price change of an underlying asset without owning it) it is one contract.

Forex terms: a standard lot is 100,000 units of the base currency (the first currency in a pair, such as EUR in EUR/USD). A mini lot is 10,000 units and a micro lot is 1,000 units. A pip (percentage in point) is the standard small price step: 0.0001 for most pairs and 0.01 for pairs quoted in Japanese yen. Pip value is how much one pip is worth for a given position size. For one standard lot of a pair quoted in US dollars (USD), one pip = 100,000 × 0.0001 = $10.

Currency conversion: if your account is in euros and the instrument is priced in dollars, convert the dollar risk at the current exchange rate. With EUR/USD at 1.10, $1 = €1 ÷ 1.10 = about €0.909.

CFD contract size: brokers define how much one contract moves per point of the underlying. Always read the contract specification. Two brokers can define the same index CFD differently.

Round sizes down so you never exceed your planned risk.

Worked example

Hypothetical example: account €10,000, risk 1% = €100 per trade. EUR/USD is assumed to be 1.10. All prices are invented round numbers. Spreads, commissions, financing and taxes are excluded.

1. Euro share

Entry €80, stop €76. Risk per share = €4. Size = €100 ÷ €4 = 25 shares (position value €2,000).

2. US share in dollars

Entry $150, stop $144. Risk per share = $6. Risk budget in dollars = €100 × 1.10 = $110. Size = $110 ÷ $6 = 18.33, rounded down to 18 shares. Actual risk = 18 × $6 = $108 = about €98.18.

3. Forex: EUR/USD

Stop distance = 25 pips. Pip value per standard lot = $10 = €10 ÷ 1.10 = €9.09. Risk per lot = 25 × €9.09 = €227.27. Size = €100 ÷ €227.27 = 0.44 lots (44,000 units). Actual risk = 0.44 × €227.27 = about €100.

4. Crypto

Entry €40,000, stop €38,000. Risk per coin = €2,000. Size = €100 ÷ €2,000 = 0.05 coins (position value €2,000). Crypto prices can move very fast and gap through stops, so actual losses can be larger.

5. Index CFD

Contract specification: €1 per index point per contract. Entry 10,000, stop 9,940 = 60 points. Risk per contract = €60. Size = €100 ÷ €60 = 1.67. If the broker only allows whole contracts, trade 1 contract (risk €60). If it allows 0.1 steps, trade 1.6 contracts (risk €96).

Common mistake

Practice activity

Account €10,000, risk 1%. You want to trade GBP/USD with a 40-pip stop. Assume EUR/USD = 1.10. Calculate the lot size, rounded down to 0.01 lots, and the actual risk in euros.

Key takeaways

• Position size = risk in € ÷ risk per unit in €, in every market.
• For forex, convert stop distance in pips into euros using pip value.
• Convert foreign-currency risk into euros before sizing.
• Read the contract specification for every CFD and always round down.

Next step

The next lesson shows where to place the stop-loss, which decides the risk per unit in this formula.