Position-size sizing turns a risk *budget* (e.g. 1% of equity) into a lot-size. It is the single most important calculation in trading - get this wrong and every other edge gets erased.
When to use it
Every trade, full stop. Even with the best entry signal, if your size is too big a normal drawdown blows the account; if too small the wins won't cover losses + slippage.
Formula
Lot Size = (Account Balance × Risk%) / (Stop Loss Pips × Pip Value).
Worked example
On a $10,000 account risking 1%, with a 25-pip stop on EUR/USD where pip value per lot is $10: lot size = (10,000 × 0.01) / (25 × 10) = 0.40 lots.
What is a safe risk per trade?
Most professionals risk 0.5–2% of equity per trade. Anything above 2% causes account-killing drawdowns even on a 50% win-rate strategy.
Should I use fixed-fractional or fixed-dollar?
Fixed-fractional (% of equity) compounds gains and protects against catastrophic drawdowns automatically. Fixed-dollar is simpler but breaks during big equity swings.