Position sizing terms

Contract size

Contract size is how many units of the underlying instrument one standard lot represents, and it is the multiplier that converts a price move into money.

For spot gold the standard contract is 100 troy ounces. That single number drives every other calculation on the symbol: a $1.00 move is $100 per standard lot, $10 per 0.10 lots and $1 per 0.01 lots, and pip value is just this figure scaled.

Not every broker uses 100. Some offer gold contracts of 10 ounces under a different symbol name, and some regional brokers use a kilogram-based contract. Assuming 100 without checking the symbol specification in MetaTrader is how a position ends up ten times larger than intended.

Check it directly rather than trusting a calculator, including ours. In MetaTrader 5, right-click the symbol in Market Watch and open Specification — the contract size is listed there, along with the minimum volume and the stop level. Two minutes of reading that panel prevents the most expensive category of sizing error.

Free margin

Free margin is account equity minus the margin currently locked up by open positions — the amount actually available to open new trades or absorb losses.

Because it is calculated from equity rather than balance, free margin moves in real time with your open profit and loss. A position going against you consumes free margin even though nothing has been realised and the balance has not changed.

This is the number to watch rather than balance, and it is the one MetaTrader shows least prominently. A trader looking at a healthy balance figure while free margin approaches zero is one adverse move away from being unable to trade, and two away from liquidation.

For a bot, free margin is effectively the real constraint on concurrent positions. Our engine caps concurrent trades explicitly rather than relying on margin to do it, because letting margin be the limiter means the system sizes itself by whatever the broker will still permit — which is exactly the wrong moment to be taking the largest position the account allows.

Leverage

Leverage is the ratio between the notional value of a position and the margin required to hold it, allowing exposure far larger than the account balance.

At 1:500 leverage, $480 of margin controls a standard lot of gold worth roughly $240,000 in notional terms. That ratio is what makes small accounts able to trade gold at all, and it is also what makes them able to lose everything in an afternoon.

The crucial point is that leverage does not change risk on its own. Risk is determined by position size and stop distance; leverage only determines whether the broker will let you hold that position. A trader risking 1% per trade has the same risk at 1:30 and 1:500 — the higher leverage simply means the margin requirement stops binding sooner.

Where leverage genuinely matters is the failure mode it enables. High leverage removes the natural brake that would otherwise stop an oversized position from being opened at all, which is why the same account blows up at 1:500 and merely bleeds at 1:30. Treat available leverage as a ceiling you never approach, not a resource to use — and read the risk disclosure.

Lot size

Lot size is the quantity of an instrument traded in a single position, expressed as a multiple of the standard contract for that symbol.

One standard lot is 100 troy ounces of gold, 100,000 units of the base currency on a major FX pair, and something different again on indices. The number in the order ticket therefore means nothing on its own — 1.00 lot of gold and 1.00 lot of EURUSD are not comparable positions.

Lot size is the output of position sizing, never the input. The correct sequence is account balance, then risk percentage, then stop distance, and only then the lot size that makes those three consistent. Choosing a lot size first and placing a stop wherever it happens to allow is the most common way retail accounts are lost.

Brokers impose a minimum, usually 0.01 lots, and on gold that floor has teeth. At 0.01 lots a $10 stop already risks $10, so on a $100 account a single trade is 10% of the balance no matter what risk percentage you configured. The lot size calculator warns when the broker minimum has silently overridden your setting, which is the specific failure this floor causes.

Margin

Margin is the portion of your balance the broker sets aside as collateral while a leveraged position is open, released when the position closes.

Margin is not a cost and it is not a loss — it is money reserved, not spent. Required margin is the notional value of the position divided by leverage, so a standard lot of gold at $4,000 with 1:500 leverage requires roughly $800.

The number that actually governs whether you can keep trading is free margin: equity minus used margin. Free margin falls both when you open positions and when open positions move against you, which is why a series of losing trades can leave you unable to open the next one even though the balance looks adequate.

For an automated system this creates a specific failure worth planning for. If the account is close to fully margined, order rejections start appearing with a "not enough money" result and the bot appears to have stopped working for no reason. The fix is capital or smaller size, not a setting — see not enough money and the margin calculator.

Margin call

Also called: Margin call meaning, Margin call explained.

A margin call is the broker's warning that equity has fallen to a set percentage of used margin, signalling that positions will be closed if it falls further.

The trigger is the margin level — equity divided by used margin, expressed as a percentage. Brokers commonly set the warning around 100% and forced liquidation, the stop out, somewhere between 20% and 50%. Both thresholds are in your account specification and both vary by broker and jurisdiction.

A margin call is a symptom, not the disease. By the time it arrives the account is already carrying positions far too large for its equity, and the diagnosis is almost always oversizing rather than a bad trade — no correctly sized position can produce one.

Automated systems reach margin calls in a characteristic way: not through one large trade, but through several simultaneous positions in a correlated direction, each individually reasonable. This is exactly why a concurrent-position cap matters more in a bot than in discretionary trading, where the human would have noticed.

Micro lot

A micro lot is one hundredth of a standard lot — 0.01 in the order ticket — and is the smallest position most retail brokers will accept.

On XAUUSD a micro lot controls one troy ounce, so a $1.00 move in gold is worth exactly $1.00. That neat correspondence makes gold unusually easy to reason about: the dollar move in price is the dollar move in your account, per micro lot.

It is also the hard floor on how small you can be wrong. Because you cannot trade 0.005 lots, there is a minimum dollar risk implied by any given stop distance, and below a certain account size that minimum exceeds any sensible risk percentage.

This is why account size and stop distance are one decision rather than two. With a $15 stop, 0.01 lots risks $15 — which is 1.5% of a $1,000 account and 15% of a $100 account. Either tighten the stop or fund the account; there is no third option, and no setting inside a trading bot can create one.

Pip

Also called: Point, What is a pip, Pip meaning.

A pip is the conventional unit of price movement for an instrument, but on gold the convention is ambiguous and two incompatible definitions are in common use.

On a major FX pair a pip is unambiguous — the fourth decimal place, or the second on a yen pair. Everyone means the same thing, so the word does useful work.

On XAUUSD it does not. Brokers quoting gold to two decimals typically treat $0.01 as a pip, which makes a pip worth $1 per standard lot. Plenty of traders, meanwhile, describe a whole $1.00 move as a pip, which makes it worth $100 per standard lot. Those two readings differ by a factor of one hundred, and both are in daily use.

The safest habit is to stop using the word on gold and think in dollars of price movement instead. That is what our engine does internally — stops, targets and the spread guard are all expressed in dollars, never pips — and it is why the pip value calculator shows both conventions rather than picking one and being wrong for half its users.

Position size

Position size is the lot quantity chosen so that the distance to your stop loss equals a predetermined fraction of your account, usually one to two percent.

The formula is short: risk amount divided by (stop distance times value per unit of movement). On gold that becomes account balance times risk percentage, divided by (stop in dollars times 100 times lots). Rearranged for lots, it gives you the only number in the ticket that is not a guess.

What the formula makes visible is that risk percentage and stop distance are joint, not independent. Widening the stop while keeping the risk percentage fixed necessarily shrinks the position; keeping the position and widening the stop increases the risk whether you intended it or not.

Two constraints break the formula in practice, and both are ignored by most calculators. The broker minimum lot puts a floor under position size, so on small accounts your real risk can exceed the configured percentage — and stops are not exact, so the modelled loss is a best case. The lot size calculator surfaces the first of those explicitly.

Stop out

A stop out is the broker's forced closure of open positions once the margin level falls below a defined threshold, executed automatically and without consent.

Brokers close positions at stop out to protect themselves from an account going negative. Typically the largest losing position is closed first, then the next, until the margin level recovers above the threshold. You do not choose which trades close or at what price.

The outcome is worse than the equivalent voluntary exit, and predictably so, because a stop out happens during the fastest and thinnest conditions — the same conditions that produced the drawdown. Slippage on forced liquidation is routinely much worse than normal.

Many jurisdictions require negative balance protection, which means the account can reach zero but not go below it. That is a genuine protection and it is also the last one — by the time it applies, the account is gone. The only real defence is sizing that makes the threshold unreachable, which is what a hard daily loss limit is for.