# Position Sizing

Position sizing is important to understand in order to prevent over-exposing/over-leveraging your account, position sizing is very important to ensure trading consistency. About 77% of retail traders lose their whole account due to incorrect risk management. This article goes through some basics on how to calculate your risk/exposure on a trade.

#### What is a “lot” in Forex?

There are three popular types of lots in Forex Trading; standard, mini and micro lot. They represent a certain amount of unit of a base currency you are trading. A standard lot is 100,000 units of a currency, a mini lot is 10,000 units of a base currency, while micro lot is 1,000 units of a base currency.

#### Trade Example with Risk Management

Assuming I have a \$10,000 account, with the 3% rule, my maximum risk for the trade would be \$300. Through technical analysis, I find a trade opportunity on GBP/USD daily chart.

My short target is at 1.27 at the 0.382 fib retracement and 200 SMA, with a stop lost at 1.29672 a previous lower high. The stop lost is about 69 pips away from current price. Dividing \\$300 by 69 we get around 4 AUD per pip. The current exchange rate for 1 AUD is 0.68 USD.

Rearranging this equation

$$\frac{1}{\textsl{AUD / Base Currency}} \times \frac{\textsl{lot size}}{10000}=\textsl{pip value}$$

$$\textsl{lot size}=(\textsl{pip value}) \times(\textsl{AUD / Base Currency}) \times 10,000$$

$$\textsl{lot size}=(4) \times(0.68) \times 10,000$$

$$\textsl{lot size}=27,200$$

27,200 has an estimated equivalent size of 0.27 lots. Hence we have determined that the maximum lot size I should do is 0.27 lots.