Orders and position sizing
Get the instructions and the size right, and you avoid most beginner mistakes. The order types, the 1% rule and the math behind the size.
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In this video
- A market order fills now. A limit order waits for a better price, a stop order for a break through a level. Stop loss and take profit are orders too.
- Risk a small, fixed share of the account on each trade, often around 1%.
- On a $10,000 account, 1% is $100. With a 50-pip stop that is $2 per pip: $100 lost at the stop, $200 made at a 100-pip target.
- The stop distance sets the size, not how good the trade feels. A fixed risk keeps you far from a margin call.
Next videoMacro FirstEdge is math1:33Whether your trading works is not a feeling. It is 2 numbers, win rate and reward to risk, and the break-even line between them.
Key terms
- Position size
- How big your trade is. It should follow from how much of the account you are willing to lose and where your stop is.
- Stop-loss
- An order that closes your trade at a set price to limit the loss. It belongs where your idea is proven wrong, not at a random distance.
- Pip
- The smallest standard price step in a currency pair. For most pairs it is the fourth decimal (0.0001), for yen pairs the second (0.01).
- Leverage
- Trading a bigger position than your deposit allows by borrowing from the broker. It multiplies gains and losses alike.