Position sizing and the 2% example
A percentage-based risk budget can make exposure easier to understand. The 2% figure is an illustration, not a suitable risk limit for every trader or account.
1. Start with a cash risk budget
In a hypothetical USD 1,000 account, 2% is USD 20. This describes a planned loss amount, not a guaranteed maximum loss. Gaps, slippage and fees can change the realised result. Prop-firm or broker limits may require different or lower exposure.
2. Size the trade using the instrument specifications
A simplified position-size calculation is: cash risk budget divided by loss per lot at the intended stop. Work out the loss per lot from stop distance, contract size, tick value and currency conversion. Allow for relevant costs and verify the specifications with the broker. Gold pip conventions differ; do not reuse a universal pip-value assumption.
3. Understand consecutive losses
If each loss is exactly 2% of the remaining balance, ten losses leave about 81.7% of the starting balance before extra costs. Fifty losses leave about 36.4%; they do not mathematically reduce the balance to zero. This calculation is an illustration, not a forecast.
4. Review total exposure
Consider correlated positions and total open risk, not just one order. Record the planned stop, trade size and reason for entry. Avoid increasing size solely to recover a previous loss. Review the approach on historical data or a demo account before relying on it.
Educational information only. Confirm current provider terms before acting.