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Position size

Position Sizing

Risk management

Definition

The decision of how many contracts to open in a trade. It's calculated from the end to the beginning: how much you are allowed to lose per trade, divided by the loss of one contract up to the drawdown. In a prop account, this is the most important decision, because it determines how many mistakes the account can absorb before the threshold.

Detailed explanation

The formula: risk per trade in dollars, divided by the drawdown size in points multiplied by the point value. The result is rounded down, and you always stay within the contract limit and the account's scaling tier. A common mistake is to set a fixed quantity ("I always enter with 3") and move the drawdown to match it. The correct order is reversed: the drawdown is determined by the chart, and the quantity is derived from it.

An example from the prop world

In FTMO Futures, in a 50K Growth account with a $2,000 threshold, a trader decides to risk $200 per trade, one-tenth of the threshold. With a 20-point stop in MNQ ($40 per contract), they open 5 MNQ contracts, which are counted in FTMO as half a contract out of the account's 5-contract limit.

Risk calculator

How many contracts to open against your stop and the account's loss limit

סטופ לוס

An exit order that closes a losing trade at a predetermined level. In a prop account, a stop is not just good risk management: it's what separates a bad trade from crossing the drawdown threshold and failing the account.

Tick value and point value

A tick is a contract's smallest price move, and the tick value is how many dollars that move is worth for one contract. A point is made up of several ticks, so the point value is the tick value times the number of ticks in a point.

Contract limit

The maximum number of contracts you may hold at once. It's usually written as mini/micro, where one mini contract equals 10 micro contracts.

Scaling plan

Tiers that set how many contracts you may open based on the profit or balance built up in the funded account. You start with a small size, and the limit rises as the account makes money.

Risk-reward ratio

The ratio between what a trade risks until the drawdown and what it can earn until the target. A ratio of 1:2 means that for every dollar at risk, the target is two dollars. The ratio alone doesn't say much: it is read together with the success rate.

End-of-day (EOD) trailing drawdown

End-of-day drawdown (EOD Drawdown) is a trailing maximum loss limit rule in which the loss threshold moves up only once a day, based on the closing balance. At most firms, however, the threshold itself is enforced in real time, so touching it during the trading day fails the account.