Risk management · Rookie
Position sizing
What does Position sizing mean?
Position sizing determines how much of an instrument to trade. A common approach divides a chosen risk budget by the estimated loss per unit at the stop.
Example
A $180 risk budget divided by $60 risk per contract allows three contracts before costs.
Illustrative example; not a provider’s quoted offer.Why it matters for prop traders
Contract limits and execution uncertainty can require a smaller size than the arithmetic alone suggests.
A calculation with costs
Assume a $200 planned risk budget, a stop distance of 12 ticks and a $5 tick value. One contract has $60 of price risk. If estimated round-trip costs are $6 per contract, three contracts use $198 of the budget. That estimate excludes additional slippage; a strict program limit requires room for execution uncertainty. A platform position cap can also prevent the calculated size.
Sources and further reading
The following primary sources support the terminology. Provider rules describe their own products and may change.