Position sizing in gold trading
Position sizing is choosing the lot size so that a stop-loss hit loses exactly the planned risk: lots = risk in dollars ÷ (stop distance × contract size).
Also called Lot sizing, Trade sizing
Position sizing is the calculation that links risk per trade, stop distance and lot size. The formula for gold is: lots = risk in dollars ÷ (stop distance in dollars × ounces per lot). Everything else in risk management depends on doing this before every trade rather than picking a lot size by habit.
How it applies to gold trading
A trader with a $5,000 account risks 1%, or $50. Their setup has a stop $10 away. Lots = $50 ÷ ($10 × 100) = 0.05. If the next setup has a $25 stop, lots = $50 ÷ ($25 × 100) = 0.02. If gold is unusually quiet and the stop is $4, lots = 0.125, which rounds down to 0.12. In each case a stop hit costs about $50.
Because gold’s volatility changes so much between a quiet Asian session and a CPI afternoon, position sizing is what keeps risk constant. Without it, the same 0.10 lot risks $40 one day and $400 the next.
The position size calculator on this site does the arithmetic from account size, risk percentage and stop distance in dollars, which removes the mental math from the moments before a trade.
A common mistake
Rounding the lot size up rather than down, or sizing by available margin. Margin tells you the largest position the platform permits, which on a leveraged gold account is many times a sensible size.
See also: Risk per trade, Stop-loss, Lot, Pip value.
Frequently asked questions
How do I calculate lot size for gold?
Divide the dollar risk by the stop distance in dollars times the contract size. For $50 risk, a $10 stop and a 100-ounce contract: 50 ÷ (10 × 100) = 0.05 lots.
What if the calculated lot size is below 0.01?
The trade is too large for the account at that stop distance. Either skip it, widen the account (not the risk), or use a cent account where smaller exposure is possible.