Pip values are approximations for a standard lot. Always confirm exact pip/point value with your broker before sizing a live trade.
Why Position Sizing Matters
Most new traders lose money not because their strategy is bad, but because their position size is wrong. Risking too much on a single trade turns a normal losing streak — something every strategy has — into an account-ending event.
A widely used guideline among professional and prop firm traders is to risk no more than 1% of account equity on any single trade (some tighten this to 0.5% for higher-volatility instruments like gold or indices). At 1% risk per trade, a string of 10 consecutive losses — statistically possible even with a good strategy — only costs about 10% of the account, which is recoverable. At 5% risk per trade, the same losing streak wipes out nearly 40%.
Divide your dollar risk amount by your stop-loss distance multiplied by the pip/point value of one lot. This guarantees that no matter how wide or tight your stop loss is, the dollar amount you lose if it's hit stays constant at your chosen risk percentage. The lot size is the output of the risk calculation, not an input you guess.
A 1:2 risk:reward ratio means your target profit is twice your risked amount. With this ratio, a trader only needs to win 34% of trades to break even, and anything above that is profit — which is why many profitable traders have win rates well under 50%.