Define a risk budget first
Position sizing connects a trading idea to the amount of capital exposed. Begin by deciding what loss scenarios you can tolerate and how positions interact. No percentage is universally appropriate for every account or trader.
A fixed monetary risk budget is an assumption, not a limit that the market must respect. Gaps, slippage and unavailable liquidity can make a realized loss larger than planned.
Relate volume to stop distance
In a simplified model, volume equals the monetary risk budget divided by the estimated loss per lot at the stop. That estimated loss must account for the instrument’s tick value, tick size, account currency and applicable costs.
For example, a hypothetical €50 budget and an estimated €250 loss per lot imply 0.20 lots before broker constraints and costs. This arithmetic example is not a recommendation. Check the calculation with the broker’s contract specification.
Check portfolio exposure
Several EAs may create overlapping exposure even when they use different strategies. Positions in correlated currency pairs can amplify one underlying bet. Review combined open risk, margin use and the behavior of positions during volatile periods.
A maximum daily loss rule or exposure cap can be a useful software control, but it depends on execution and availability. Plan for terminal outages and rejected orders as well as market moves.
Evaluate the process over time
Log the intended risk and actual outcome for each trade. Investigate differences rather than automatically changing the settings after a short losing sequence. Changes should follow a documented research process.
Use our backtesting article to evaluate assumptions before deployment. Forex and leveraged instruments involve substantial risk, including the loss of your capital. This material is educational and is not personal financial advice.
Educational content only. This article is not investment advice. Automated and leveraged trading involves substantial risk of loss.