Position Sizing Definition

Position sizing is the process of determining how much capital to allocate to a specific trade.

What is Position Sizing?

Proper position sizing helps manage risk by limiting the potential loss on any single trade relative to overall account size.

It is often calculated based on a fixed percentage of account equity risked per trade.

Risking 1% of a $10,000 account on a single trade means limiting potential loss to $100 through position sizing.

A pending order is an instruction to buy or sell an asset once the price reaches a specified level, rather than immediately.

A pip is the smallest standardized price movement in a currency pair, typically the fourth decimal place.

A portfolio is a collection of financial assets, such as stocks, bonds, currencies, or commodities, held by an individual or institution.