Lot sizing is the process of determining how large your trade position should be relative to your account size and the amount of risk you are willing to take. In forex, a standard lot represents 100,000 units of the base currency, a mini lot is 10,000 units, and a micro lot is 1,000 units.

The formula is: Lot Size = Risk Amount / (Stop Loss in Pips x Pip Value). First, calculate your risk amount by multiplying your account balance by your risk percentage. Then, divide that by the product of your stop loss distance and the pip value for one standard lot. The result is the number of standard lots to trade.

For example, with a $10,000 account risking 2% and a 50-pip stop loss on EUR/USD, your risk amount is $200. Since the pip value for one standard lot of EUR/USD is $10, the lot size is $200 / (50 x $10) = 0.40 standard lots, or 4 mini lots, or 40 micro lots. This ensures that if your stop loss is hit, you lose exactly $200, or 2% of your account.