Does Size Matter?

It’s not what you’ve got, but what you do with it that counts, right?

Wrong.

If you’ve got $1,000 in your account, and you’re trading ten mini lots at a time, you will quickly end up broke as a joke.

Size does matter…in trading. Get your mind out of the gutter.

One of the most common mistakes traders seem to make is entering a trade with the correct number of lots, otherwise known as “position size.”

As a newbie, your risk should never be more than 1-2% of your total account. That means if you have $10,000 and you keep your position size to 1%, you should never risk more than $100 in a trade.

So for example, if you’re trading a mini-account (10k lots) with 200:1 margin, you would be limited to 2 lots.

Most new traders think they can quickly start increasing their position size just because they get lucky on a couple trades that turned out to be profitable.

BIG mistake.

Size is a double-edged sword. Size can make you big profits, but it can also cause big losses as well.

Another dumb move inexperienced traders make is increasing their position size on their next trade right after a losing trade so they can try and make up for the money lost.

This is an even bigger mistake because not only is the trader emotional because of the recent loss, but a larger position size can possibly blow his/her account.

You have to learn to decrease, not increase, your position size when trades aren’t going your way.

Let me repeat that again just in case you were daydreaming.

You have to decrease, NOT increase, your position size when trades aren’t going your way.

The more money you lose from your trading account, the harder it will be to recover those losses, and eventually you’ll be “bankrupt”.

When trading, size does matter.

Your position size should always be determined by the size of your account.
Most professional traders never open a position that risks more than 1% of their account. Some of them even believe that’s still too much!

The bigger your account and the smaller your position size, the longer you’ll last.

  • spidypips

    We have to decrease, not increase when our position size arent goin our way

    ^_^

  • deleted

    Hi am new in forex, and i will like to learn more.

    • Egyptian

      Pipsychology
      what about experienced trader ? still they work with 1% ?

  • deleted

    Hi am new in forex, and i will like to learn more.

  • pipraider

    This whole thing about 1%/2% breeds confusion… I like to keep it as simple as possible so I trade 2x my total account size or less.

    … so if you have 10k in your account you should only trade with (or less then) 2mini-lots since 1mini=10k. I personally believe margin is not important(to an extent)… if you think you are going to get a margin call because you have to use more of your cash then there is something wrong with your trading plan.

    its easier then doing the math (account-size X 1% X your-margin) there is a huge difference between 50:1 then 400:1…. if one is worried about putting in more cash in order to trade the same lot size then they are either using too much of their account or they are confused.

  • pipraider

    This whole thing about 1%/2% breeds confusion… I like to keep it as simple as possible so I trade 2x my total account size or less.

    … so if you have 10k in your account you should only trade with (or less then) 2mini-lots since 1mini=10k. I personally believe margin is not important(to an extent)… if you think you are going to get a margin call because you have to use more of your cash then there is something wrong with your trading plan.

    its easier then doing the math (account-size X 1% X your-margin) there is a huge difference between 50:1 then 400:1…. if one is worried about putting in more cash in order to trade the same lot size then they are either using too much of their account or they are confused.

  • rhodytrader

    As a newbie, your position size should never be more than 1-2% of your total account.

    This statement is going to confuse people. You mean your position size your never risk more than a small percentage of your account.

    “So for example, if you’re trading a mini-account (10k lots) with 200:1 margin, you would be limited to 2 lots.”

    I have no idea where you’re coming up with this two lot thing. In order to determine trade size you need to know first how large your account balance is, and second how large a risk you are taking per lot. You’ve included neither in your example.

    Position size is not, I repeat not, a function of leverage. Leverage merely allows you to take larger positions. It should not in any way dictate the size of the positions you take beyond whether or not you have sufficient leverage/margin available to put on the position size you desire.

  • rhodytrader

    As a newbie, your position size should never be more than 1-2% of your total account.

    This statement is going to confuse people. You mean your position size your never risk more than a small percentage of your account.

    “So for example, if you’re trading a mini-account (10k lots) with 200:1 margin, you would be limited to 2 lots.”

    I have no idea where you’re coming up with this two lot thing. In order to determine trade size you need to know first how large your account balance is, and second how large a risk you are taking per lot. You’ve included neither in your example.

    Position size is not, I repeat not, a function of leverage. Leverage merely allows you to take larger positions. It should not in any way dictate the size of the positions you take beyond whether or not you have sufficient leverage/margin available to put on the position size you desire.

  • cruze2005

    I trade with 100:1 leverage on a mini account (base 10 i call it). My simple formulae is to trade 1 lot per $1000. So if you have an account with $10000 you could trade with 10 lots. It also comes down to your risk, how much do you effectively wish to risk per trade. I am quite conservative and dont generally risk outside of 20 to 25 pips and never above 30. That is part of my trading strategy

  • cruze2005

    I trade with 100:1 leverage on a mini account (base 10 i call it). My simple formulae is to trade 1 lot per $1000. So if you have an account with $10000 you could trade with 10 lots. It also comes down to your risk, how much do you effectively wish to risk per trade. I am quite conservative and dont generally risk outside of 20 to 25 pips and never above 30. That is part of my trading strategy

  • forexgump

    Awesome comments from everyone! Pipraider and rhodytrader make great points about the statement that “position sizes of 1-2% of your total account” can be confusing. Dr. Pipslow feels the same way, and has edited the article accordingly. Small amounts of risk are always the best practice, especially for beginners. Thanks for the wonderful feedback everyone.

  • forexgump

    Awesome comments from everyone! Pipraider and rhodytrader make great points about the statement that “position sizes of 1-2% of your total account” can be confusing. Dr. Pipslow feels the same way, and has edited the article accordingly. Small amounts of risk are always the best practice, especially for beginners. Thanks for the wonderful feedback everyone.

  • scapula3

    Size of account does matter. If you are going to do Forex trading as a business, and not as a hobby, it is necessary to think of the capitalization of your business.

    I highly recommend that you place a minimum of $20,000 into your account….but only once you are well grounded in trading and have studied technical analysis and have traded many demo accounts. Each demo account needs to be studied thoroughly, so that you are aware of any and all mistakes that you have made. We all learn from experience, and we all learn from examining our mistakes.

    Once you have established a $20,000 live account, and you have a successful trading plan, you will be able to consistently make money.

    With a $20,000, or larger, account, you will have a definite comfort zone for keeping positions open, either hedged, or unhedged, that will eventually create a profit.

    I advise close monitoring of the account with limited use of stop losses. If you have prepared your research beforehand in a specific currency pair(s)’ performance for the past 6 months to 2 years, you should be able to guage the range of price action that the currency pair stays in. In other words, there is range of prices that the currency pair moves from the very lowest to the very highest price fairly predictably. I have had my positions open on some of my trades for 1-2 days, and I have had some positions open for 4-9 weeks. I make most of my money on the day I enter the trade, but sometimes the trade goes the wrong way, and I have a choice of taking the loss right away, or waiting for the price to come down, or go up. Research is the key. The prices always cycle. The most important thing is to have enough money in your account so that you never worry about a margin call.

    A further suggestion: put $50,000 into your account. Remember, this is a business. If you were going to build a small business in your city, you would probably invest a minimum of $50,000, and most small businesses need at least $250,000 in capital to launch effectively.

    Train diligently with demo accounts and trade daily and study everything you can find on Forex. Then, open a live account of $20,000 – $50,000, and start making money.

  • scapula3

    Size of account does matter. If you are going to do Forex trading as a business, and not as a hobby, it is necessary to think of the capitalization of your business.

    I highly recommend that you place a minimum of $20,000 into your account….but only once you are well grounded in trading and have studied technical analysis and have traded many demo accounts. Each demo account needs to be studied thoroughly, so that you are aware of any and all mistakes that you have made. We all learn from experience, and we all learn from examining our mistakes.

    Once you have established a $20,000 live account, and you have a successful trading plan, you will be able to consistently make money.

    With a $20,000, or larger, account, you will have a definite comfort zone for keeping positions open, either hedged, or unhedged, that will eventually create a profit.

    I advise close monitoring of the account with limited use of stop losses. If you have prepared your research beforehand in a specific currency pair(s)’ performance for the past 6 months to 2 years, you should be able to guage the range of price action that the currency pair stays in. In other words, there is range of prices that the currency pair moves from the very lowest to the very highest price fairly predictably. I have had my positions open on some of my trades for 1-2 days, and I have had some positions open for 4-9 weeks. I make most of my money on the day I enter the trade, but sometimes the trade goes the wrong way, and I have a choice of taking the loss right away, or waiting for the price to come down, or go up. Research is the key. The prices always cycle. The most important thing is to have enough money in your account so that you never worry about a margin call.

    A further suggestion: put $50,000 into your account. Remember, this is a business. If you were going to build a small business in your city, you would probably invest a minimum of $50,000, and most small businesses need at least $250,000 in capital to launch effectively.

    Train diligently with demo accounts and trade daily and study everything you can find on Forex. Then, open a live account of $20,000 – $50,000, and start making money.

  • Seishin_Tengu

    It’s the value of your stop-loss that determines the risk, not position size. Consider that every trade is entered at a loss position and the market volatility will nearly always go somewhat against you for some time before swinging back to the good side.
    Ever notice that nifty little spike just before the market moves? Always happens. So there will always be some number of pips to allow for when placing your trade.
    Over-sizing the trade position will force that initial stop-loss to be dangerously close, which means that more otherwise good trades will be stopped out for a loss even when the position choice is correct.
    On the other end of this process is the absolutely minimum size trade, the micro-lot (is there a nano-lot now?) With such a small size order, the stop-loss can be ridiculously far away.
    So, IMHO, start with a reasonable distance away for that stop and size the position accordingly from there.