How to Choose a Stop-Loss Distance
A stop-loss distance is an input to position sizing, not an output determined by a preferred lot number. This guide explains the mathematical relationship without prescribing where a specific trade should exit.In this guide
- Express distance in consistent units
- Observe the sizing relationship
- Keep execution uncertainty visible
Express distance in consistent units
For entry 1.1000 and stop 1.0950, absolute distance is 0.0050. With a selected 0.0001 pip size, that is 50 pips. On a 100,000-unit contract, modeled loss is $500 per lot before costs.
Observe the sizing relationship
With a $100 budget, that example supports 0.20 lot. Doubling the stop distance doubles loss per lot and halves raw size to 0.10 lot, all else equal. A tighter stop permits a larger modeled position but does not make the setup inherently safer or more likely to work.
Keep execution uncertainty visible
A stop order does not guarantee the stop price in all market conditions. Gaps, available liquidity, spread and slippage can change the actual exit. Broker minimum stop distances and volume limits also matter. Use a coherent trading plan to choose assumptions, then calculate the exposure those assumptions imply. Do not move the stop purely to make a desired lot number fit.
Distance must have a unit
For a hypothetical gold entry of 2000 and stop of 1990, distance is $10 per ounce. For EURUSD entry 1.1000 and stop 1.0980, distance is 0.0020 quote currency per base unit, or 20 increments of 0.0001. Do not enter the number 20 into a field expecting the raw price difference 0.0020.
Recalculate size when distance changes
At 100 ounces per lot, a $10 gold stop gives $1,000 risk per lot. A $100 budget permits 0.10 lot before costs. A $25 stop gives $2,500 risk per lot and permits 0.04 lot. Both examples use the same budget, but different exposure. The calculator explains this relationship; it does not choose a technically suitable stop.
Will a stop always fill at its trigger?
No. Execution can differ from the trigger during gaps or fast markets, subject to order type and broker terms. A planned stop-distance loss is therefore a scenario. Review the actual order specification and avoid treating a modeled amount as a guaranteed maximum loss.
Try the related calculator with your own inputs and review its assumptions.
Further reading: Calculation methodology and related guides.
Educational information, not personalized investment advice. Verify broker rules and contract specifications.