{"term":{"slug":"position-sizing","term":"Position Sizing","definition":"The process of determining how many contracts, lots, or shares to trade per position based on your account size, risk tolerance, and the distance to your stop-loss. Proper position sizing is the foundation of risk management.","extendedExplanation":"Position sizing in prop trading is more constrained than personal trading because you must stay within daily loss limits and overall drawdown. The standard approach is to risk a fixed percentage per trade (typically 0.5-2% of account balance) and calculate lot size based on stop-loss distance.\n\nThe formula is: Position Size = (Account Balance * Risk Percentage) / (Stop Loss in Pips * Pip Value). For futures, it is: Number of Contracts = Risk Amount / (Stop Loss in Ticks * Tick Value). This ensures each trade risks the same dollar amount regardless of stop-loss width.\n\nProp firm traders must also consider the daily loss limit as a hard cap. If your daily loss limit is $2,000 and you risk $500 per trade, you can only take 4 consecutive losses before being terminated for the day. Aggressive position sizing (risking 2%+ per trade) leaves very little room for losing streaks.","exampleWithNumbers":"FTMO $100K account, 1% risk per trade ($1,000). Trading EUR/USD with 50 pip stop-loss. Pip value for 1 standard lot = $10. Position size = $1,000 / (50 * $10) = 2 standard lots. Daily loss limit is $5,000, so you can take 5 consecutive full losses before hitting the daily limit. With 2% risk ($2,000 per trade), you can only take 2.5 losses.","category":"risk","relatedTerms":["risk-per-trade","lot-size","stop-loss","max-contracts","leverage","daily-loss-limit"]},"_links":{"self":"https://runvigil.app/api/glossary/position-sizing","page":"https://runvigil.app/learn/position-sizing","allTerms":"https://runvigil.app/api/glossary","learn":"https://runvigil.app/learn"}}