Understanding Position Sizing for Risk Management

One core concept often overlooked by newer traders is proper position sizing, which is simply determining how many units of an asset you should buy or sell based on your account size and your risk tolerance per trade. For example, if you risk 1% of your $10,000 account, that's $100. If your stop loss on $NZDJPY is 20 pips, and each standard lot is $7 per pip, you'd divide your $100 risk by $140 (20 pips * $7/pip) to get 0.7 lots. This ensures a predetermined, consistent risk on every trade, regardless of the instrument or setup.