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What is position sizing and how is it calculated?

Position sizing determines how many lots or units a trader should buy or sell based on account size and risk tolerance. The formula typically involves dividing the risk amount (e.g., 1% of account balance) by the stop-loss distance in pips multiplied by pip value. For example, risking $100 on a 50-pip stop with $10 per pip means a position size of 0.2 lots. Proper position sizing ensures consistent risk management and prevents overexposure. Without it, traders risk blowing accounts during losing streaks. It is a cornerstone of professional risk management.