Before you place any trade, you should know exactly how much you lose if the stop loss is hit. To make that number true, you need to calculate lot size from two things you already decided: the amount you are willing to risk and the distance to your stop.

The formula to calculate lot size

For most forex pairs it looks like this:

Lot size = Risk amount ÷ (Stop loss in pips × Pip value per lot)

On pairs quoted in US dollars, such as EURUSD or GBPUSD, one standard lot (100,000 units) is worth about $10 per pip. A mini lot (0.10) is about $1 per pip, and a micro lot (0.01) about $0.10 per pip.

Example 1: EURUSD

  • Account balance: $1,000
  • Risk per trade: 1%, which is $10
  • Stop loss: 20 pips

Lot size = $10 ÷ (20 × $10) = 0.05 lots.

If the stop is hit, you lose 20 pips × $0.50 per pip, which is $10. Exactly the amount you planned.

Example 2: Gold (XAUUSD)

Gold works a little differently. With most brokers one standard lot of XAUUSD is 100 ounces, so every $1 move in price is worth $100 per lot.

  • Risk: $10
  • Entry: 4,450.00, stop loss: 4,445.00, a $5 move

Lot size = $10 ÷ ($5 × $100) = 0.02 lots.

Contract sizes do vary between brokers, so check the contract specification for XAUUSD on your platform before you rely on these numbers.

What if the answer isn't a clean number?

Round down to the nearest lot size your broker allows. Rounding up means you risk more than you decided. Rounding down means you risk slightly less, which is always the safer side.

Common lot size mistakes

  • Using the same lot size on every trade, even though the stop distance changes.
  • Forgetting pairs where USD isn't the second currency, such as USDJPY, where the pip value changes with price.
  • Adding to a losing position, which quietly doubles the risk.
  • Ignoring spread on tight stops, especially around news.

Make it a habit

Work out the lot size for every trade before you click buy or sell. After a week it takes seconds. Pair it with the risk management rules and your losses stay small and predictable, which is exactly what lets you keep trading long enough to get good.

Trading carries a high level of risk. Nothing in this article is financial advice.