Position Sizing

Position sizing is the process of calculating the correct trade size to risk a specific percentage of your account on each trade. It is the single most important risk management skill for prop firm traders.

The Basic Formula

Position Size = (Account Risk $) / (Stop Loss Distance × Value Per Point)

Example (Futures — ES)

• Account: $100K, Risk per trade: 1% ($1,000)
• Stop loss: 10 points, ES tick value: $12.50/tick = $50/point
• Position size = $1,000 / (10 × $50) = 2 contracts

Example (Forex — EUR/USD)

• Account: $100K, Risk per trade: 1% ($1,000)
• Stop loss: 30 pips, Standard lot pip value: $10/pip
• Position size = $1,000 / (30 × $10) = 3.33 lots → round down to 3 lots

Why Position Sizing Matters in Prop Trading

With strict drawdown rules, oversizing is the #1 reason traders breach their accounts. A conservative approach:

• Evaluation phase: Risk 0.5–1% per trade
• Funded account: Risk 0.5–0.75% per trade
• Near drawdown limit: Reduce to 0.25% or stop trading

Fixed Fractional vs Fixed Dollar

• Fixed Fractional: Always risk X% of current balance (adjusts as account grows/shrinks)
• Fixed Dollar: Always risk the same dollar amount regardless of balance changes

Most prop traders use fixed fractional because it naturally reduces size during drawdowns.