Trading mechanics & risk
Position Sizing with Spread and Commission
Allow for trading costs without counting spread twice. Compare fixed cash reserves with per-lot commission using transparent EUR/USD examples.
In this lesson
- Distinguish fixed cash reserves from fees charged per lot.
- Avoid subtracting spread twice when executable prices already include it.
Course outline
The complete course
8 modules. One clear path.
Follow the lessons in order, or return to a topic when you need it. Every lesson is open.
01Market foundations7 lessons · Not started
Start with quotes, orders, costs, exposure and the practical demands of a trading day.
- Read a currency quoteNot completed
- Choose an order instructionNot completed
- Identify the costs of executionNot completed
- Separate margin from riskNot completed
- Read account equity and closeout rulesNot completed
- Compare styles and commitmentsNot completed
- Read session times correctlyNot completed
02Stops, sizing and risk6 lessons · Not started
Connect price distances and contract assumptions to cash exposure, payoff and drawdown.
- Measure a stop distanceNot completed
- Calculate a position sizeNot completed
- Convert JPY pip valuesNot completed
- Include costs consistentlyNot completed
- Separate payoff from expectancyNot completed
- Understand recovery and loss sequencesNot completed
03Read price in context4 lessons · Not started
Work from completed observations to candles, zones and clearly stated pattern boundaries.
- Describe swings without hindsightNot completed
- Read the candle before the labelNot completed
- Mark and test a price zoneNot completed
- Define a chart pattern’s boundaryNot completed
04Understand indicator calculations3 lessons · Not started
Study what moving averages, RSI and MACD calculate before interpreting a signal.
- Compare SMA and EMANot completed
- Interpret RSI with its assumptionsNot completed
- Separate MACD from its histogramNot completed
05Gold products and calculations4 lessons · Not started
Identify the product, translate lots into ounces and work through results and position sizing.
- Identify the gold productNot completed
- Translate gold lots into ouncesNot completed
- Calculate a gold trade’s resultNot completed
- Translate gold lots into cash riskNot completed
06Economic releases and policy9 lessons · Not started
Read currency drivers, inflation, growth and policy announcements with their expectations and revisions.
- Study both sides of a currency pairNot completed
- Read an NFP releaseNot completed
- Compare like-for-like CPI figuresNot completed
- Compare PCE inflation measuresNot completed
- Read growth rates and revisionsNot completed
- Interpret a survey readingNot completed
- Separate spending from quantitiesNot completed
- Read the complete policy releaseNot completed
- Read beyond the FOMC headlineNot completed
07Build and test study rules5 lessons · Not started
Define a reproducible study, audit its assumptions and work through breakout, trend and range examples.
- Write a complete study specificationNot completed
- Audit a backtest before trusting itNot completed
- Account for a breakout’s executionNot completed
- Specify a trend-following studyNot completed
- Specify a range-trading studyNot completed
08Review decisions and evidence2 lessons · Not started
Review the process behind a result and the records needed to assess a performance claim.
- Review decisions as well as outcomesNot completed
- Assess signals and performance claimsNot completed
The short answer
A cash risk budget needs to cover the modelled adverse price move and any extra costs you choose to allow for. A position that uses the whole budget on price movement leaves nothing for commission, financing or execution differences.
By InsomniCapital · Published 2 October 2026 · Illustrative calculations, not investment advice
Separate price loss from additional costs
Keep every component in the account currency before combining them. A fixed cash reserve is a total amount for the proposed trade. A per-lot commission rate grows with position size. They require different arithmetic. Rates and prices in this guide are hypothetical, not a broker quotation or a recommended risk level.
Modelled total loss = lots × price loss per lot + additional trade costs
Example one: a fixed cash reserve
Suppose the budget is USD 100, the EUR/USD stop distance is 25 pips and a full lot has a USD 10 pip value. Price loss per lot is 25 × 10 = USD 250. With no costs, the calculation gives 100 ÷ 250 = 0.40 lot.
Reserving a fixed USD 5 leaves USD 95 for the price move. The size becomes 95 ÷ 250 = 0.38 lot. At that size the price-loss estimate is USD 95 and the reserved allowance is USD 5, totalling USD 100.
The reserve is an assumption, not an execution guarantee. If actual costs or slippage exceed it, the realised loss can exceed the budget. Our position-size tool accepts this fixed-reserve model.
Example two: commission charged per lot
Instead assume USD 7 round-turn commission per full lot, with no other reserve. A round turn means opening and closing the position; confirm whether a published fee is per side or already round turn. Here, total modelled loss per lot is 250 + 7 = USD 257.
Lots = (cash budget − fixed reserve) ÷ (price loss per lot + round-turn fee per lot)
100 ÷ 257 is approximately 0.389105. With a 0.01-lot increment, round down to 0.38 lot. Price loss is USD 95 and commission is 0.38 × 7 = USD 2.66, making USD 97.66. Rounding up to 0.39 would produce USD 100.23 and exceed the modelled budget.
If a separate USD 5 fixed reserve also applies, 95 ÷ 257 rounds down to 0.36 lot. The result is USD 90 price loss + USD 2.52 commission + USD 5 reserve = USD 97.52. Minimum commissions, tiers and nonlinear charges require the broker's actual fee schedule.
Compare stop distances and commission side by side
Hold the cash budget at USD 100 and the EUR/USD pip value at USD 10 per full lot. Change only the stop distance and round-turn commission. There is no fixed reserve in this comparison, and the permitted lot increment is 0.01.
| Stop (pips) | Fee per lot (USD) | Size (lots) | Total loss model (USD) |
|---|---|---|---|
| 10 | 0 | 1.00 | 100.00 |
| 10 | 7 | 0.93 | 99.51 |
| 25 | 0 | 0.40 | 100.00 |
| 25 | 7 | 0.38 | 97.66 |
| 50 | 0 | 0.20 | 100.00 |
| 50 | 7 | 0.19 | 96.33 |
For the 10-pip stop with commission, one lot would lose 10 × 10 + 7 = USD 107. The unrounded size is 100 ÷ 107 ≈ 0.934579. Rounding down gives 0.93 lot: USD 93 price loss + USD 6.51 commission = USD 99.51. The unused USD 0.49 is a rounding remainder, not a fee refund.
A wider stop lowers the calculated size when the budget stays fixed. A tighter stop permits a larger size in this arithmetic, but also increases exposure and can increase margin requirements. It does not make the trade safer or justify moving a stop merely to obtain a larger lot size. These totals exclude slippage, financing and any costs outside the stated commission.
Avoid counting spread twice
When entry and assumed exit use executable ask and bid prices, their difference already includes spread. Add commission and other charges separately; do not add the same spread again. If the distance was measured using mid-prices or only one chart quote, first reconcile it with the sides used for execution.
The fixed-reserve calculator does not interpret a per-lot fee schedule for you. Translate fees into a cash allowance for the proposed size and recheck the final size against that schedule. Use the profit/loss calculator to inspect long and short price outcomes with a total cash-cost assumption.
Document the prices, pip size, conversion direction, contract units and fee convention with the scenario. Keeping assumptions visible makes a calculation reproducible; it does not make a trade suitable or profitable.
Sources and assumptions
Sources checked 2 October 2026. All worked examples are hypothetical and independently calculated. Product specifications, charges and execution rules can vary.
Lesson 11 checkpoint
Put the reading into practice
Work it through
Recalculate the USD 100, 25-pip example after reserving a fixed USD 5 for costs. Then explain why a USD 7-per-lot commission needs a different formula.
Completion records your study of this lesson. Read the evidence standards for how examples and claims are presented.