Stage 3: Execution and Risk · Module 8: Risk Management and Position Sizing · Lesson 3 of 9 · Back to course
You’ve chosen how much you’re willing to lose on a trade (see the 1% rule). Position sizing turns that into an actual trade size: a stake per point for a spread bet, or a number of lots or contracts for a CFD.
The key idea: your stop goes where the chart says, and your size is what changes. You don’t move the stop to suit the size you want. You change the size so that, if the stop is hit, you lose your chosen amount.
What you’ll learn
- The one formula behind all position sizing
- A seven-step routine you can use on every trade
- Worked examples for a spread bet, a forex CFD and an index CFD
- Why you always round down
- How to check margin and total risk before you click
The one formula
Size = risk in £ ÷ (stop distance × value of one move for one unit)
Everything else is detail. For a spread bet, “one unit” is £1 a point, so the formula simplifies to:
Stake per point = risk in £ ÷ stop distance in points
For CFDs you need the value of one pip or point for one lot or contract, which we cover in detail in Lesson 8.4, pip, point and tick values.
The seven-step routine
- Find your entry from your setup.
- Place your stop where the trade idea is proved wrong – beyond a swing low, a support level, or a multiple of ATR. Not where it’s convenient.
- Measure the stop distance in points or pips.
- Work out your risk in £ (balance × risk %).
- Find the value of one point or pip for one unit of what you’re trading.
- Calculate the size and round down to the nearest size your platform allows.
- Check the real risk, the margin needed, and your total open risk.
It takes a minute or two once you’ve done it a few times. Many platforms have a calculator built in, but do it by hand at first so you understand what the calculator is doing.
Example 1: spread bet on the FTSE 100
All figures are made up for teaching purposes. They aren’t a trade idea.
- Account: £4,000. Risk: 1% = £40.
- Buy at 8,250. Stop below a recent swing low at 8,210.
- Stop distance: 8,250 − 8,210 = 40 points.
- Stake = £40 ÷ 40 = £1 a point.
Check: if the stop is hit, 40 points × £1 = £40. That’s 1% of the account, as planned.
Now suppose the chart suggested a wider stop at 8,170 (80 points). Same risk, same formula: £40 ÷ 80 = £0.50 a point. Wider stop, smaller size, same £40 at risk.
Example 2: spread bet on GBP/USD
With most spread bets on forex, one point is one pip (0.0001 on GBP/USD) and the provider converts to pounds for you.
- Account: £4,000. Risk: £40.
- Sell GBP/USD at 1.2650, stop at 1.2675 – a 25-point stop.
- Stake = £40 ÷ 25 = £1.60 a point.
Check: 25 × £1.60 = £40.
Example 3: forex CFD on GBP/USD (GBP account)
CFDs are sized in lots. One standard lot is 100,000 units of the base currency. On GBP/USD, one pip for one lot is worth $10, which in a pounds account is about £7.91 when GBP/USD is 1.2650.
- Risk: £40. Stop: 25 pips.
- Lots = £40 ÷ (25 × £7.91) = £40 ÷ £197.75 ≈ 0.202 lots.
- Round down to 0.20 lots.
Check: 25 pips × 0.20 × £7.91 ≈ £39.55. Just under the plan – exactly what rounding down is for.
Example 4: index CFD
Index CFD contract sizes vary between providers. A common setup is that one contract on a UK 100 index CFD is worth £1 per point, but some offer £10 per point or fractions. Check the contract specification before you size.
- If one contract is £1 a point: risk £40, stop 40 points → 40 ÷ (40 × £1) = 1 contract.
- If one contract is £10 a point: 40 ÷ (40 × £10) = 0.1 contracts – only possible if your platform allows fractional sizes.
Getting the contract size wrong is one of the most common, and most expensive, beginner mistakes. A trade sized for £1 a point that’s really £10 a point risks ten times what you planned.
Example 5: futures (MES and MNQ)
Hypothetical. Risk £75; at £1 = $1.30 that’s about $97.
Futures have a fixed value per tick, so you choose a number of contracts rather than a stake. Contracts = risk ÷ (stop in ticks × tick value).
- MES ($1.25 per tick): stop 6 points = 24 ticks → $30 per contract → $97 ÷ $30 = 3.2 → 3 contracts ($90 at risk).
- MNQ ($0.50 per tick): stop 40 points = 160 ticks → $80 per contract → 1 contract ($80).
- ES ($12.50 per tick): stop 6 points → $300 per contract → 0 contracts. Too big for this account – use MES or skip.
Tick values: CME Group, checked 18 October 2026. Full method in 1F.8 Futures position sizing in ticks.
Always round down
If the formula gives 0.316 lots, you trade 0.31, not 0.32. If it gives £1.67 a point and your platform only allows steps of £0.10, you trade £1.60. Rounding up means risking more than your rule allows – small each time, but it adds up, and it’s the start of “near enough”.
Step 7: the three checks
1. Real risk. Recalculate with the rounded size and include the spread if it’s a meaningful part of the loss.
2. Margin. Position sizing tells you your risk. Margin is what the broker holds while the trade is open. In Example 1, £1 a point on the FTSE at 8,250 is about £8,250 of exposure. At 20:1 leverage (5% margin) that’s £412.50 of margin. Make sure there’s plenty of free money left – see UK leverage limits.
3. Total open risk. If you already have two trades open at 1% each, a third means 3% at risk at once – more if they’re correlated. Many traders set a cap, such as 3% across all open trades.
Common mistakes
- Sizing first, then placing the stop where the size “works”. This puts the stop in an arbitrary place.
- Using the wrong pip value, especially on yen pairs, gold or indices with unusual contract sizes.
- Forgetting the spread on short stops.
- Adding to a losing trade, which quietly increases your risk beyond the plan.
- Not adjusting after a loss. If you size from a percentage of your balance, recalculate as the balance changes.
Key takeaways
- Size = risk in £ ÷ (stop distance × value per unit). For spread bets: £ risk ÷ points.
- Place the stop from the chart first, then size. Never the other way round.
- Always round down to the nearest allowed size.
- Check the contract size, the margin and your total open risk before you click.
- A gap can still jump your stop, so the real loss can be bigger than planned.
Quick check
- Account £6,000, risk 1%, spread bet stop 30 points. What stake per point?
- Your formula gives 0.487 lots and your platform allows steps of 0.01. What do you trade?
- What should change if your stop needs to be twice as wide?
Answers: 1) £60 ÷ 30 = £2 a point. 2) 0.48 lots – always round down, never up. 3) Your size halves; your £ risk stays the same.
FAQs
Can I use a position size calculator? Yes, and it’s a good idea once you understand the maths. Double-check that it’s using the right account currency, instrument and contract size.
Why not just use a fixed size, like £1 a point, on everything? Because stop distances vary. A fixed £1 a point on a 20-point stop risks £20; on a 120-point stop it risks £120. Your risk would jump around for no reason.
What if my stop is very wide? Your size will be small. If it falls below the minimum trade size, skip the trade or keep practising on demo – don’t squeeze the stop to make the numbers fit.
Disclaimer: This page is general education, not financial or investment advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. Read our full risk warning.