Position size: define the loss before the quantity

How it works

Planned loss = fixed round-trip costs + quantity × (monetary price risk per unit + variable round-trip costs per unit). Choose invalidation first, then find an allowed quantity within the budget.

Every number below is hypothetical, educational and in the account currency; none is a market quote or broker fee. For lots and derivatives, convert protective distance to money using the contract specification and tick value. With a simple linear fee model, subtract fixed costs from the budget, divide the remainder by unit risk plus variable costs, then round down on the permitted quantity grid. Here the minimum and increment are both 5; a different minimum requires the broker’s actual grid. Minimum commissions, tiered fees and currency conversion require a full-cost check after rounding. Do not count the same spread twice: if it is already reflected in execution prices, do not add it again.

A hypothetical example

Hypothetical budget 100; monetary price risk per unit 2; variable round-trip costs per unit 0.1; fixed round-trip costs 4. The remainder is 96; 96 / 2.1 ≈ 45.71. With a minimum and increment of 5, the maximum is 45: 4 + 45 × 2.1 = 98.5. Counterexample: rounding to 50 gives 4 + 50 × 2.1 = 109, exceeding the budget. If the estimated price risk rises to 2.5 before sending the order, recalculate: 96 / 2.6 ≈ 36.92; the maximum is 35 and planned loss is 95. Quantity 40 would give 108. If the minimum allowed quantity is 50, no quantity fits.

Try it yourself

Build a hypothetical table for quantities 35, 40, 45 and 50. Separately calculate fixed costs + quantity × price risk including variable costs. Change the protective distance and recalculate; do not move invalidation to fit the desired quantity.

Hypothetical budget 100, monetary price risk 2 per unit, variable round-trip costs 0.1 per unit, fixed round-trip costs 4; minimum and increment 5. Find the maximum quantity and explain why 50 does not fit.