Position Sizing for Stocks vs Forex

Position Sizing for Stocks vs Forex

If there’s one thing I wish someone had sat me down and explained when I started trading, it’s this: size matters. Not in the sense of ambition or ego. I’m talking about position sizing—the silent killer in most retail accounts. It’s not the bad trades that end most traders. It’s the ones that were too big.

Over the years, I’ve traded both stocks and forex. Sometimes side by side. And if you try to size those positions the same way, you’ll find yourself confused, overexposed, or worse—margin called.

Let’s take a proper look at how position sizing works in both stock trading and forex, and how to avoid the common issues that catch out most UK traders.

Where It All Went Wrong (and Right)

Back in 2015, I had just come off a decent run trading UK equities. I was feeling confident. Too confident. I decided to dabble in forex, thinking the same principles would apply. So I shorted EUR/USD with what I thought was a small position. Five hours later, I was down over £400 on a £5,000 account.

That trade wasn’t reckless. It was just badly sized. I didn’t understand pip value. I didn’t factor in leverage. And I had no business risking that much on a currency I didn’t know well.

The lesson? Stocks and forex are different beasts. And they need different sizing.

Trading UK Stocks

Trading UK stocks isn’t the same as long-term investing. The mechanics might look familiar—price per share, stop loss in pence, total cost in pounds—but the mindset is completely different. If you’re actively trading stocks, you need to think more like a forex trader: precision, risk, speed.

Example: Trading Rolls-Royce

You buy at 300p with a stop at 290p. That’s 10p of risk per share.

If you want to risk £200, you would calculate:

• £200 divided by £0.10 = 2,000 shares
• 2,000 × 300p = £6,000 total trade size

With a CFD or spread betting platform offering 20% margin, you would need around £1,200 in capital to open the trade. With a traditional broker, you’d need the full £6,000.

Real Risks to Consider

Slippage and Gaps

Especially around earnings or macro events. A 10p stop on a FTSE 250 stock may not protect you from a 50p gap.

Illiquidity

Smaller caps can have wider bid/ask spreads. This affects both entries and exits.

Overnight Holding

Even solid setups can become riskier when held through close. If I’m holding overnight, I halve my size or widen stops to account for the gap risk.

Sizing Differences: Stock CFDs vs Cash Shares

Cash Shares

Cash trading is straightforward. You buy the shares, and you’re fully exposed to their value. You need 100% of the capital.

CFDs

CFDs allow you to control more with less, typically requiring 5–20% margin. This lets you trade bigger sizes but requires discipline.

Practical Example: Trading Shell

• Entry price: 2,600p
• Stop: 2,550p (50p risk)
• Desired risk: £200

Position size = £200 / 50p = 400 shares

• Total exposure = 400 × 2,600p = £10,400
• Margin required (at 20%) = ~£2,080

CFDs make active stock trading more flexible, but also introduce financing fees and emotional pressure to overtrade.

Forex Position Sizing: Pips, Lots, and Leverage

Forex sizing took me the longest to master. At first, I found the lot sizes confusing. Mini lots, micro lots, pip values changing by pair—it was a mess. But once it clicks, you start to appreciate the precision.

The key elements are:

• Account currency (let’s assume GBP)
• Pair being traded (e.g., GBP/USD or EUR/JPY)
• Stop loss in pips
• Pip value (which varies by pair and size)

Let’s say:

• You have a £10,000 account.
• You want to risk 1% (£100).
• Your stop loss is 50 pips.
• You’re trading EUR/USD.

In a standard lot (100,000 units), each pip = $10. You want to risk £100, which is around $125.

$125 ÷ 50 pips = $2.50 per pip. That’s 0.25 standard lots (or 25,000 units).

Now if you were trading GBP/JPY, the pip value would be different. For GBP/JPY, one pip in a 1-lot trade is roughly £7. So if you want to risk £100 on a 40-pip stop:

£100 ÷ £7 ≈ 14 contracts. That’s 0.14 lots.

The challenge with forex is that size can be misleading. The leverage can make a 0.5 lot trade seem harmless. But if the pair moves quickly, and you’re not prepared, the losses rack up fast.

I once placed a 0.6 lot trade on AUD/JPY thinking it was small. A 100-pip swing later, I was £300 down. That was more than I was comfortable with, and the stress made me close early.

The Biggest Differences Between Stocks and Forex Sizing

Feature	Stocks	Forex
Risk Unit	Per share (£)	Per pip
Position Unit	Number of shares	Lot size (standard, mini, micro)
Leverage	Usually none	Typically 30:1 for retail UK traders
Capital Required	Full trade value	Small % of trade value (margin)
Gaps	High risk (overnight earnings, etc.)	Less common but still possible
Volatility	Slower, more stable	Faster, more reactive
Stop Loss Execution	Risk of gapping	Usually tighter fills

What I Do Now When Trading

After some years of trading, here are some tried and true lessons i learnt from trading both stocks and forex and how to calculate sizes.

1. I risk less in forex. The market moves more, so I often size at 0.5% risk per trade instead of 1%.
2. I use a position size calculator every time. No guessing. I want to know the lot size that matches my risk.
3. I treat overnight stock trades with caution. I reduce size or avoid holding through earnings.
4. I treat each product with its own sizing rules. No more assuming.

Final Thoughts

Stocks and forex are both great to trade. But sizing them the same way is a mistake I see all the time—especially from new traders who bounce between the two.

Forex gives you flexibility and precision, but also volatility and leverage risk. Stocks are calmer, but you need more capital and you’re exposed to gaps.

These days, I treat sizing like brushing my teeth. It’s a non-negotiable part of every trade. Whether it’s 300 shares of Barclays or 0.12 lots of EUR/USD, I know exactly what I’m risking before I hit buy.

And that’s the difference between trading like a gambler and trading like someone who plans to be around for a long time.