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Risk and position sizing

Trading on margin can lose you more than you put in. Past results, including backtests, do not predict future results. Cloud9Trader provides tools and education, not financial advice. Read the full risk warning.

How much you trade matters more than when you trade. Every strategy has losing runs; position size decides whether you survive them.

A common approach is to risk a fixed share of your account on each trade, often 1% or less. You set a stop loss first, then size the position so that being stopped out loses that amount.

A worked example

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Your account holds 50,000 US dollars and you risk 1% per trade: 500 dollars. You buy EUR/USD with a stop loss 25 pips below your entry.

  • You can lose 500 ÷ 25 = 20 dollars per pip.
  • On EUR/USD one pip on one unit is 0.0001 dollars, so the size is 20 ÷ 0.0001 = 200,000 units (2 lots).

Ten losing trades in a row at 1% each leave about 45,200 dollars (50,000 × 0.99¹⁰), a fall of under 10%. At 5% per trade the same run leaves about 29,900, a fall of 40%, and you would then need a 67% gain to get back to where you started.

In Cloud9Trader

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openPosition can size a position for you from its stop loss:

openPosition("BUY", {
  riskPercentage: 1,
  stopLossPips: 25,
});

riskPercentage risks that share of your balance, and riskAmount risks a fixed amount in your account currency. Both need a stop loss and work out the quantity as the amount at risk divided by the distance to the stop. The distance is measured from the price you open at, so the spread is part of it.

A stop loss can be jumped. If the price gaps past it, the position closes at the first price after the gap and you lose more than you planned.

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