Working out position size

The money you are willing to lose on one trade is a figure you decide before you look at the chart. It is written in dollars, not in lots and not in pips, because dollars are what leave the account. A common starting point for a small account is one per cent of its value, but the figure that matters is the one you can repeat on a bad week without changing it. If A$30 is your number, it stays A$30 whether the setup looks strong or weak.

A fixed dollar figure keeps the arithmetic honest. When risk is set as a percentage, a losing run shrinks the account and the next risk figure shrinks with it, which slows the damage without hiding it. When risk is set as a feeling, the figure grows after a win and grows again after a loss you want to recover, and neither move is written down anywhere. Writing the number down before the trade removes that choice.

The stop distance is the second number, and it comes from the chart rather than from your account. On AUD/USD around 0.6640, a stop placed 20 pips away is a decision about where the trade idea is wrong, not about how much you want to win. The two numbers are independent: the chart sets the distance, and you set the dollars. Only the lot size is left to be calculated, and that is the point of the order.

A pip on AUD/USD is a move in the fourth decimal place, so a change from 0.6640 to 0.6641 is one pip. Pip value is what that one pip is worth in the currency your account is held in. For a standard lot of 100,000 units, the usual figure quoted is about A$10 per pip, and that figure is the one used in the worked examples on this page. It is a starting point, not a constant.

The figure varies because your account currency may not be the quote currency of the pair. AUD/USD is quoted in United States dollars, so a profit or loss is first calculated in those dollars and then converted into Australian dollars at the rate in force. That conversion moves, so the pip value moves with it, by a small amount on most days. Your platform or your broker's contract specifications will show the value it is using right now, and that is the number to trust.

Commission and spread sit on top of the pip value and are not part of it. A broker that charges a commission per lot has a different total cost from one that builds the cost into a wider spread, and the two cannot be compared by pip value alone. This is one reason the same trade can cost different amounts at different brokers. Check the published contract specifications for the instrument rather than assuming the A$10 figure applies to your account.

Sometimes the division gives a lot size below the smallest amount the platform will accept. Many platforms trade in steps of 0.01 lots, so 0.15 lots is placeable but 0.004 lots is not. When the answer falls under the minimum, the trade is larger than your risk plan allows at that stop distance. The correct action is to leave it, not to round the size up and not to move the stop closer to make the arithmetic fit.

There are only two honest ways to make a trade fit, and both change the trade rather than the rule. You can widen the stop and accept that the position must be smaller, or you can wait for a setup where the distance to the stop is tighter relative to the opportunity. What you cannot do is keep the stop where it is and open a size the platform allows, because that is the reversed order described earlier, arriving by a different route.

Skipping a trade costs nothing and leaves the account unchanged. Taking a trade at twice the intended risk costs real money and teaches nothing about whether the idea was good, because the result is dominated by the size rather than the analysis. Over a year, the trades you decline are as much a part of the plan as the ones you take. A plan that cannot be followed on a quiet day is not yet a plan.