Position sizing: from risk to lots

You have a balance, a chosen fraction from lesson 1, and a trade whose stop belongs 40 pips away. One division turns those into the only size that respects all three. This lesson is that division, run carefully once, so you can run it for the rest of your trading life.

What are the chain's three links?

First: balance times risk percentage equals cash at risk - the money this trade may lose, fixed before anything else. Second: stop distance times pip value per lot equals the loss one lot would take at the stop. Third: divide the first by the second, and the result is the largest size whose stop-out stays inside the budget.

Module 3's lesson 2 built the pip value this chain multiplies by, and its conversion into your account currency is where beginners most often slip: the arithmetic must happen in one currency, yours, end to end.

Why does the stop come before the size?

Because the stop belongs to the trade and the size belongs to the arithmetic. The stop's distance is set by where the idea is wrong - lesson 3's subject - and it varies trade by trade. The size absorbs that variation: a wider stop buys fewer lots at the same risk, a tighter stop buys more, and the cash at risk holds still through both.

Run backwards - pick a size, then place the stop where the size can afford it - and the stop lands where the arithmetic pushed it rather than where the idea fails. The trade then carries either too much risk or a stop that a normal wobble clips. Both are self-inflicted, and both are invisible until the account shows them.

What does the same trade look like at a different balance?

Identical in fractions, different in everything the eye sees. The worked example's accounts range widely, and each lands on a different lot size from the same percentage and the same stop. Comparing your size with another trader's is meaningless without their balance and fraction attached; comparing fractions is the honest comparison.

What this means for you

Run this chain for your next planned trade before you touch the ticket, in your currency, with your numbers. If the computed size is below your broker's minimum, the answer is not rounding up - it is that this trade, at this stop, does not fit this account at your chosen risk. The arithmetic saying no is the arithmetic working.