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How to Calculate the Perfect Futures Position Size


Finding an entry and knowing how/why you'll get out is only part of a trade. Risk or money management is another key factor. Trade too big of a position size and a few losing trades can wipe you out. Trade too small (a less common problem) and you may not be adequately rewarded on favorable trades.

Risk management and position size go hand in hand. Instead of arbitrarily deciding your position size, choose a percentage of your account you're willing to risk on a single trade. Most professional traders risk 1% or less, but some risk up to 3%.

Trading a $30,000 futures account, if risking 1% per trade you're allowed to lose $300.

Next, determine your points (or ticks) at risk. Assume you're trading the S&P 500 E-mini (ES) contract. You want to buy at 2110 with a stop loss at 2108. Your risk is two points (8 ticks).

Trading one contract, each point is worth $50 (or $12.50 per tick). If the price hits the stop loss, you'll lose 2 points x $50 = $100.

The $100 you stand to lose is less than the $300 you're allowed to lose. In this case, trading three contracts gives you the ideal position size for the specific trade: 3 contracts x 2 points x $50 = $300

To quickly calculate the ideal position size for any futures contract or account size, use the formula:

Dollars Willing to Risk / (Points at Risk x Point Value) = Number of Contracts Traded

Dollars Willing to Risk is 1% of your current account balance, or whatever percentage you decide you're willing to risk (in this case, it was $300).

Points at Risk is the difference between your entry price and stop loss order. If day trading change this to ticks if required.

Point Value is how much each point of movement is worth in dollars. If day trading change this to Tick Value if required.

Number of Contracts Traded is the size of the position you should take given your entry, stop loss and the amount you're willing to lose.

Point Values, and other contract specifications, can be found by looking up a futures contract on the CME Group site (see What is a Futures Clearing House? to understand their role).

Position size could be different for every single trade as account balances fluctuate, different futures contracts have different point values, and the points at risk may change from trade to trade.

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