Risk per trade and position size

Professional risk management starts from a simple question: if this trade is wrong, how much will I lose? The answer depends on two things, the distance to the stop and the number of contracts.

The arithmetic

Risk in money = distance to stop in ticks × tick value × number of contracts.

For example, a stop 20 points away on MNQ is 80 ticks. At $0.50 per tick, that is $40 per contract. Three contracts would put $120 at risk, before costs and slippage.

How traders set limits

• Many traders cap risk on any single trade at a small fixed share of their account. The number is a personal choice, and this course does not suggest one.
• Daily loss limits stop a bad day from becoming a bad month.
• Stops are not guaranteed. In fast markets or around news, a stop order can be filled at a worse price than the one set, which is called slippage.

Position size is the one variable a trader fully controls. Strategy, entries and markets all matter, but none of them helps if a single trade can do serious damage to the account.

This lesson explains a calculation. It does not recommend any level of risk or any trade. Consider independent professional advice before trading.