# Position Sizing for Beginners: Risk per Trade · DT Academy > Pips, lots and spread explained, where to set a stop loss and take profit, and how to size a position so one loss stays small and fixed. [Back to The DT Intensive](https://www.thedtterminal.com/academy/courses/dt-intensive) Day 4How to choose your risk Chapters done # How to choose your risk Day 04 of 26 · 8 min read · By DT Terminal Risk is how much of your account you lose if your stop loss is hit. This lesson covers pips, lots and spread, how to set a stop loss and take profit, how to size a position from your risk, and why a small fixed percentage per trade keeps any one loss small. Unlock the full lesson in the app Worked examples, the quiz and the interactive tools are in the app. Free account. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fhow-to-choose-your-risk) Chapter 1 of 6 ## Pips, lots and pip value A **pip** measures how far price moved. A **lot** is how big your position is. The **pip value** joins them: what one pip is worth at your size. ### Pip Unit of price movement The **4th decimal** on most pairs. `1.08500` to `1.08750` is 25 pips. ### Gold Measured in dollars Measured here in **dollars of price movement**: `3,350.00` to `3,355.00` is $5. ### Lot Position size One forex lot is **100,000 units**. One lot of gold is usually **100 ounces**. | Instrument | Measured in | 0.01 lot | 0.10 lot | 1.00 lot | | --- | --- | --- | --- | --- | | `EURUSD, GBPUSD, AUDUSD` | pips (0.0001) | $0.10 / pip | $1 / pip | **$10 / pip** | | `USDJPY` | pips (0.01) | ≈ $0.07 / pip | ≈ $0.67 / pip | ≈ $6.67 / pip | | `XAUUSD` | $1 of price | $1 / $1 move | $10 / $1 move | $100 / $1 move | Any pair quoted in USD (USD second) has **the same pip value**. For USDJPY the value depends on the rate; these figures are at 150.00. **Pipettes, JPY pairs and where the values come from** On `EURUSD` a pip is `0.0001`, so EURUSD moving from `1.08500` to `1.08750` is 25 pips. The 5th decimal is a **pipette**, a tenth of a pip. JPY pairs are the exception: a pip is the 2nd decimal, `0.01`. USDJPY from `150.20` to `150.50` is 30 pips. Pip conventions for gold differ between brokers, which is why this course uses dollars. If you hear someone call $0.10 a pip on gold, that is one common convention, not a rule. A standard lot is 100,000 units of the first currency. Most people trade fractions: `0.10` (a mini lot, 10,000 units) and `0.01` (a micro lot, 1,000 units). Contract sizes vary by broker. Check the symbol's specification in your platform before you size a trade. The table's values: a pip on `EURUSD` is 0.0001 of a dollar per euro, and one lot is 100,000 euros, so one pip is 100,000 × 0.0001 = $10. On `USDJPY` one pip is 100,000 × 0.01 = 1,000 yen, which at 150.00 yen to the dollar is about $6.67. On gold, 100 ounces moving $1 each is $100. Chapter 2 of 6 ## Spread, commission and swap You buy at the **ask** and sell at the **bid**. The gap is the **spread**, so every trade opens slightly negative. It widens around news and at the daily rollover (17:00 New York). Spread the cost of getting in The gap is drawn larger than real life so you can see it. **Commission** is a fee per lot. **Swap** is a small overnight fee, or sometimes a credit, for holding past rollover. Each is small on one trade and adds up over hundreds. **MT5 charts show the bid.** **Shorts close at the ask**, so a short's stop can be hit when no candle on your chart touched it. Look up the numbers in Calculators In the Pip / Tick Value calculator, check `EURUSD` and `XAUUSD` at 0.10 lots against the table. Then see what a night's swap costs. **Go deeper** On `EURUSD` the spread is often under 1.5 pips at a mainstream broker, and it widens a lot around news and at rollover. Commission is charged by some account types instead of a wider spread. **Count commission and swap** when you judge whether a strategy really makes money. Longs close at the bid, but shorts close at the ask. A short's stop is hit when the ask reaches it, which happens most when spreads widen. Chapter 3 of 6 ## Stop loss, take profit and R Every trade gets three prices first: the **entry**, the **stop loss** (where you are wrong) and the **take profit** (where you get paid). Then you size it so being wrong costs a fixed amount. The stop decides the size, never the other way round. Long EURUSD · stop 20 pips · target 2R [Replay in the app](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fhow-to-choose-your-risk%3Fsection%3Dstop-and-target%23stop-and-target) ### Stop loss Where your idea is **proven wrong**, just beyond the swing point it depends on. ### Take profit At the next logical level, such as the next swing. ### 1R What you lose if the stop is hit. Making twice that is **+2R**. Above, 1R is $100: a 20 pip stop under the swing low and a 40 pip target. | Outcome | In dollars | In R | | --- | --- | --- | | Stop hit | −$100 | −1R | | Closed early at +20 pips | +$100 | +1R | | Take profit hit | +$200 | +2R | DT Terminal Charts NAS100 · H1 The same three prices on a chart: the stop sits under the swing low, 40 points below the entry, and the target is 80 points above it, 2R. Example 01 sizes this trade. **Go deeper** **The stop does not go where the loss feels comfortable**, or a random 10 pips away. The take profit can be the opposite level or the next swing, and you can take part of the trade off early (a **partial**) and leave the rest. Results are **measured in R** so traders with different account sizes can compare them. The chart is the same idea on a real chart, a long on `NAS100`: the swing low first, the entry on the pullback, the stop just under the swing low and the target at twice the stop distance. Chapter 4 of 6 ## Sizing a position Pick a **fixed percentage** of the account to risk, then size the trade so hitting the stop costs exactly that. lots = (balance × risk %) ÷ (stop distance × value per lot) The diagram's trade: $10,000 × 1% = $100, divided by 20 pips × $10 per lot, is 0.50 lots. Lots round **down** to 0.01, so you risk a little less than you asked for, never more. The sizing chain: risk first, lots last The diagram trade, worked left to right. Change the stop and only the last box moves: **the dollars at risk stay the same**. Interactive tool ### Position size calculator This interactive tool runs in the app, with your own numbers. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fhow-to-choose-your-risk%3Fsection%3Dposition-size%23position-size) Free account Save your risk as a preset In the Risk Engine, save a "Learning" preset at 1% per trade. At a $10,000 preview balance it should say $100. **Go deeper** 0.01 is the smallest size most brokers take. Doing the sum by hand before every trade is where mistakes creep in, so **save your risk once**, as a percentage or a fixed amount, and size every trade from that same rule. Apply the preset to your practice account: its $100 is the same 1R as the diagram's trade. Chapter 5 of 6 ## Check the contract, then size Index and crypto contract sizes vary by broker. **Read the symbol specification** in your platform before you size anything. Worked example ### Example 01: Sizing a NAS100 trade The worked example, with every number walked through, is in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fhow-to-choose-your-risk%3Fsection%3Dcontract-size%23contract-size) Free account **The NAS100 working, and a BTCUSD short** On some brokers one lot of NAS100 moves $1 per index point, on others $10 or more. Example 01 assumes $1 per point per lot. Account $10,000, risk 1%, so 1R = $100. A long at 19,850.0 with the stop under the swing low at 19,810.0 is a stop distance of 40 points. A 2R target is 80 points away, at 19,930.0. At $10 per point the lot number is ten times smaller for the same risk, so sizing from the wrong specification is a ten times mistake in one direction or the other. Worked example ### Example 02: Sizing a BTCUSD short The worked example, with every number walked through, is in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fhow-to-choose-your-risk%3Fsection%3Dcontract-size%23contract-size) Free account Chapter 6 of 6 ## Why the percentage matters Every trader has losing streaks. Here are ten losses in a row, and the gain needed to recover. | Risk per trade | After 10 losses in a row | Gain needed to recover | | --- | --- | --- | | 1% | −9.6% | +10.6% | | 2% | −18.3% | +22.4% | | 5% | −40.1% | +67.0% | | 10% | −65.1% | +186.8% | **Recovery grows faster than the loss.** A 65% drop needs almost 187% to repair. Worked example ### Example 03: A $5,000 account over a bad week The worked example, with every number walked through, is in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fhow-to-choose-your-risk%3Fsection%3Drisk-percentage%23risk-percentage) Free account **A common guideline while you learn: risk 1% or less per trade, and give every trade a stop loss from the moment it is placed.** **Never widen a stop to avoid a loss.** This is general guidance, not a personal recommendation. **Go deeper** Each loss in the table is taken as a percentage of the balance at the time. A 10% drop needs about 11% to repair; a 65% drop needs close to tripling what is left. In the bad week, the same setups and the same stops lost every day. At 1% the next trade still risks $47.55. At 5% the pressure to win it back fast is exactly what makes the next trade worse. Moving a stop closer to protect profit is a different decision from widening it. The right risk figure depends on your account, your strategy and any rules your broker or prop firm sets. Quick review ## Check yourself Quick review · 0 of 0 Quiz ### Check yourself: 2 questions Answer each question and see why it is right, in the app. [Continue in the app, free](https://www.thedtterminal.com/login?signup=true&redirect=%2Fjournal%2Facademy%2Fhow-to-choose-your-risk%3Fsection%3Dcheck%23check) Free account [All lessons in The DT Intensive](https://www.thedtterminal.com/academy/courses/dt-intensive) [Previous](https://www.thedtterminal.com/academy/types-of-orders) ## Types of orders Day 03 · 9 min read [Next in Learn to trade](https://www.thedtterminal.com/academy/market-sessions) ## Market sessions Day 05 · 9 min read ## Try it on your own account Connect a broker and DT Terminal verifies every trade against it. Free to start. [Start free](https://www.thedtterminal.com/login?signup=true&from=academy&entry=closing_card&redirect=%2Fjournal%2Facademy) [Back to DT Academy](https://www.thedtterminal.com/academy) DT Academy is education, not financial advice. Nothing here is a recommendation to buy or sell any instrument. Trading carries a high risk of losing money, and past results, examples and backtests do not guarantee future results. [Risk disclosure](https://www.thedtterminal.com/risk-disclosure) --- Risk disclosure: Futures, forex and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one's financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. [Read the full risk disclosure](https://www.thedtterminal.com/legal/risk-disclosure). This is the Markdown version of https://www.thedtterminal.com/academy/how-to-choose-your-risk. [Home](https://www.thedtterminal.com/) · [Verification](https://www.thedtterminal.com/verification) · [Pricing](https://www.thedtterminal.com/pricing) · [Supported brokers](https://www.thedtterminal.com/supported-brokers) · [Rankings](https://www.thedtterminal.com/rankings) · [About](https://www.thedtterminal.com/about) · [llms.txt](https://www.thedtterminal.com/llms.txt)