What is R in trading? Position sizing by risk, step by step

R is the amount you lose on a trade if the stop-loss is hit. It is the unit professional traders use to measure both risk and results, because it works the same on every market and every account size. Once you think in R, position sizing becomes one line of arithmetic.

What R means

Say you buy at 5,000 with a stop-loss at 4,975. The distance between the two, 25 points, is your risk on the trade. That risk is 1R.

• The stop is hit: the trade lost 1R.
• The price moves 50 points in your favour and you close: the trade made 2R.
• You close at the entry price: 0R.

Notice that nothing here mentions dollars or lot sizes. A result of +2R means the same thing on a $1,000 account and on a $100,000 one: the trade made twice what it risked.

Why results are quoted in R

A result in dollars depends on how large the trader’s account is. A result in points depends on the market: 50 points on one index is not 50 points on another. R removes both, so two systems, two markets or two years can be compared directly.

It is also why every figure on our signals pages is in R. You can turn any of them into your own money by deciding what 1R is worth on your account.

Position sizing in three steps

1. Choose your risk per trade as a share of the account. Many traders use between 0.5% and 1%.
2. Measure the stop distance: the gap between the entry and the stop-loss.
3. Divide. Position size = money at risk ÷ (stop distance × value of one point).

A worked example

If the stop is hit, the loss is $100, which is 1R and 1% of the account. The value of one point differs between brokers and instruments, so check the contract specification on your own platform before you place the order.

How much to risk per trade

Every system has losing runs, and the size of 1R decides what a losing run costs. Here is what a run of 10R in losses takes from an account at three risk levels:

Pick the level at which you could keep following the plan without changing anything. A smaller, steady risk that you stick to does more for an account than a larger one you abandon halfway.

Sizing a signal

Every TFXSignals signal arrives with an exact entry and stop-loss, so 1R is known before you place the order. An index signal is sent as three positions that share one entry and one stop: split your risk for the trade across the three so that together they still add up to 1R. A USDJPY signal is a single position.

Three sizing mistakes to avoid

• Sizing in lots, not in risk. The same lot size is a different risk on every trade, because the stop distance changes.
• Moving the stop further away. It turns the 1R you planned into a larger loss you did not.
• Raising the risk after losses. Trying to win it back quickly is how an ordinary losing run becomes a serious one.

For why a system can win fewer than half its trades and still come out ahead, read win rate vs risk-reward.