Definition and purpose
Multiple Position Sizing is a position sizing approach used when an account can hold multiple forex trades at the same time. Instead of sizing each trade as if it were the only one, the method aims to control how the combined set of positions affects exposure. The goal is to keep overall risk aligned with the plan, while still allowing different trades to have different sizes.
In practice, “exposure” can mean several things: potential loss if prices move against you, sensitivity to a price move (often linked to pip value), or concentration in one direction or one correlated market driver. Which meaning you use matters, and it should be stated as an assumption.
How it works (stable mechanics)
A typical mechanics flow is:
- Choose a risk basis: common choices include “risk per trade” and “risk per account.” With multiple positions, “risk per account” is often more consistent because it explicitly addresses the combined effect.
- Define the measurement unit: many sizing methods relate position size to a stop distance or another boundary where the loss estimate is computed. You assume a specific stop distance (in pips or price) to translate risk into units.
- Map each open position’s contribution: each trade has a notional size and an estimated loss under the chosen boundary. You compute how much each position would add to total potential loss.
- Enforce a constraint: you set a limit for the sum (or for a chosen component) of all concurrent positions. If the limit would be exceeded, the next trade size is reduced or the trade is not opened under the plan.
Example with explicit assumptions
Assume a simplified account risk rule: total potential loss across all open positions should not exceed 2% of account equity. Assume your trades all use the same stop distance of 20 pips, and pip value per unit is comparable across the pair set you trade (this assumption is often not fully true in real markets, which is why verification matters).
- Account equity: 10,000 (assumption)
- Max total risk: 2% = 200
- Each position’s estimated loss at the boundary is proportional to its size
If one position is sized so its estimated loss at the boundary is 120, then another position can be sized so its estimated loss is at most 80 to keep the total at or below 200. Multiple Position Sizing is the discipline that ensures the sizes are chosen with that “sum of contributions” constraint, not just individually.
Distinguishing it from adjacent concepts
Multiple Position Sizing is related to, but not the same as, single-trade sizing. Single-trade sizing decides the size of one new trade using the plan’s risk rule, typically without explicitly considering existing positions. When multiple positions are open, single-trade sizing can accidentally exceed your intended total exposure because losses can add up.
It also differs from diversification. Diversification may spread trades across different instruments, but it does not automatically control the combined loss if positions share the same underlying risk driver. Multiple Position Sizing focuses on measured or modelled combined exposure under stated assumptions.
Limitations and failure modes
Even with correct mechanics, several limitation categories can cause the method to fail:
- Wrong assumptions about loss at the boundary: stop distance may not translate to realized loss due to slippage, partial fills, execution delays, or changes in pricing through the boundary.
- Hidden correlation and concentration: two trades can appear different but still move together (for example, both effectively short the same risk factor). If you size them independently, the combined exposure may be larger than expected.
- Variable costs and spreads: forex trading costs can change over time. If you compute risk without including realistic costs, the true loss can exceed the planned limit.
- Equity changes during the sequence: if your sizing rule uses current equity, then the equity will change as positions move or as you open additional trades. Unless you specify when equity is measured (at placement, at close, or using a simulation), the sizing basis can drift.
Material risk example (why “sum of risk” can mislead)
Suppose your plan assumes that losses will equal the estimated loss at a stop boundary.