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Position sizing is the decision about how big each trade should be, and it links contract size, account capital and planned exit distance. Because futures are leveraged, the wrong position size can turn an ordinary losing trade into a damaging one. This guide explains the core idea, a common way to calculate position sizing, how to adjust it for volatility and related markets, and the assumptions that can make a calculation misleading.
Why position sizing matters more in commodities
When you trade futures, you only post margin, a fraction of the contract’s value. That means each contract controls far more of the commodity than the cash you put up. CME Group’s contract materials warn that with futures it’s possible to lose more than you deposited.
In stocks, buying too many shares means a bigger loss if the price falls. In futures, trading too many contracts can wipe out an account in a single bad day. A sizing calculation lets you compare exposure with your chosen planning budget; it cannot control execution or the eventual market move. You can’t control where gold or crude oil goes next, but you can decide, before you click, how much exposure you accept. The eventual loss is not completely under your control.
Start with risk, not with margin
A common beginner mistake is to size a position by how many contracts the margin allows. Margin tells you the minimum you must deposit. It says nothing about how much you could lose. CME Group’s performance bond (margin) requirements are set by the clearing house to cover expected price moves, and they change as volatility changes. They were never designed as a sizing tool for your account.
CME’s Proper Position Size lesson relates account risk to stop distance. Treat the chosen dollar amount as a planned loss budget, rather than a guaranteed maximum loss. A price gap or an unfilled order can break the assumptions. Test repeated-loss scenarios separately instead of assuming that a smaller percentage prevents serious damage.
A simple way to calculate position sizing
The calculation below illustrates that CME method using hypothetical inputs. It is an educational worksheet, not a recommendation to trade a particular size.
- Account risk: the dollar amount you’re prepared to lose on this trade.
- Trade risk per contract: the distance from your entry to your exit point if wrong, converted to dollars using the contract’s size and tick value.
- Position size: planned loss budget ÷ estimated loss per contract, rounded down. Then check fees, slippage, margin and the cash buffer separately.
Worked example: gold (illustrative only)
CME’s Micro Gold product guide specifies 10 troy ounces per contract. The prices and account below are hypothetical, and the first calculation excludes commissions and slippage.
| Input | Value |
|---|---|
| Account size | $20,000 |
| Planned loss budget before fees and slippage | $300 |
| Distance to your exit if wrong | $5 per ounce on a 10-ounce Micro Gold contract |
| Trade risk per contract | $5 × 10 oz = $50 |
| Position size | $300 ÷ $50 = 6 contracts |
Notice that a full-size 100-ounce gold contract would risk $500 on the same $5 move, more than the whole $300 budget. The full-size contract therefore exceeds this hypothetical planning budget even before costs. Rounding down produces zero. The example illustrates that a whole-contract minimum may not fit the selected assumptions.
Worked example: crude oil (illustrative only)
The same arithmetic works in any market once you know the contract size. CME Group’s Micro WTI Crude Oil contract covers 100 barrels. Suppose you keep the same $300 risk budget and your exit is $1.50 per barrel away from your entry. Trade risk per contract is $1.50 × 100 = $150, so the position size is $300 ÷ $150 = 2 contracts. If your analysis says the exit needs to be $2.50 away instead, risk per contract becomes $250, and the answer rounds down to a single contract. The wider your exit, the smaller your position must be. That’s the whole point: size and exit distance are linked, not independent.
Exit points aren’t guaranteed. Fast markets and price gaps can fill your exit well beyond the level you planned, so real losses can exceed the calculation. Treat the number as a budget, not a promise.
Add execution costs to the hypothetical calculation
The six-contract gold result above used only the assumed price move. Suppose, again purely for illustration, commissions and an execution allowance together add $10 per contract. The worksheet’s estimated loss per contract becomes $50 + $10 = $60. Dividing the same $300 budget by $60 produces five contracts, not six. The $10 allowance is invented, not a current broker fee or a prediction of slippage.
Now stress the assumption: if the market gaps so the exit occurs $10 per ounce away instead of $5, five 10-ounce contracts have a $500 price loss before fees. That exceeds the $300 budget even though you reduced the size for costs. This shows why a planned exit and a budget cannot guarantee a loss ceiling. CME’s profit-and-loss lesson explains the contract arithmetic; the CFTC warning about losses beyond initial investment remains relevant.
Adjusting position sizing for volatility
Exit distance is an assumption you must document; neither a fixed amount nor a recent price range guarantees a suitable exit. The logic is simple: a $5 move in gold on a quiet day means something very different from a $5 move during a central bank announcement. If your exit is inside the normal daily noise, routine price fluctuations may trigger it. That does not prove that a wider exit would improve results.
A practical approach is to look at how far the market has typically moved from high to low over the past couple of weeks and consider that range alongside the reason for the trade. This is an analytical choice, not a rule about where to put an exit. Because a wider exit means fewer contracts, the formula produces fewer contracts if the assumed exit distance increases, and more if it decreases. That is arithmetic, not evidence that changing size will improve a strategy. The planned loss amount can stay similar as the exit distance changes, but realized losses can still differ because of gaps, slippage and fees.
Other things that affect position sizing
- Volatility. More volatile markets usually need smaller positions for the same dollar risk. Compare measured ranges over the same period rather than assuming a permanent ranking between commodities.
- Correlation. Holding several related positions, such as crude oil and heating oil, or gold and silver, can stack up more risk than it appears. If you are long three energy contracts that all fall on the same inventory report, you effectively have one large position, not three small ones. Record a combined-loss scenario across related positions as well as each individual worksheet.
- Margin buffer. Keep enough spare cash to meet a margin call without being forced to close positions. If a position-sizing calculation leaves you with almost no free cash after margin, the position is too big for the account even if the dollar risk looks fine.
- Contract size. Micro and mini contracts let you size more precisely than full-size contracts. For smaller accounts, they’re often the only way to make the maths work without rounding down to zero.
- Expiry and rollover. Rolling a position into the next contract month means briefly holding two positions or paying a spread. Build that into the risk you’ve allowed for the trade.
A pre-trade position sizing checklist
Run through these before placing any order. Use it to document the inputs and limitations of the calculation.
- What is my account size today, after yesterday’s results?
- What dollar amount am I willing to lose on this trade?
- Where exactly is my exit if I’m wrong, and why there?
- What is this contract’s size and tick value? (Check the exchange specifications, not memory.)
- What is my risk per contract in dollars?
- How many contracts does that allow, rounded down?
- Do I already hold positions that move with this one? If so, does the combined risk still fit my limit?
- After margin, will I still have a comfortable cash buffer?
If any answer is “I’m not sure”, the position size is zero until you are.
Position sizing mistakes to avoid
- Sizing by available margin instead of by risk. This confuses a deposit requirement with your loss exposure.
- Increasing size after losses to “win it back.” Increasing contracts increases the dollar effect of the same adverse move. A past loss does not provide evidence that the next trade will recover it.
- Ignoring that several positions may move together. Diversification across correlated commodities is often an illusion.
- Skipping a planned exit point. Without an exit, risk per contract is undefined, so position size is undefined too. “I’ll see how it goes” is not a plan.
- Forgetting that exchanges can raise margin requirements during volatile periods. A position that fit yesterday may trigger a margin call today even if the price hasn’t moved against you.
- Trading one size for every market. Two contracts of natural gas and two of gold are not equivalent risks.
The CFTC describes speculating in futures as volatile, complex and rarely suitable for individual retail investors in its Futures Market Basics. If you do trade, sizing is where discipline starts. Read our guide to crude oil trading basics for how one market works in practice.
Frequently asked questions
What percentage of my account should I risk per trade?
There is no percentage in this guide that is a recommendation for your account. A planning budget cannot cap the eventual loss. A qualified adviser can help assess your circumstances, while the worksheet only shows how chosen assumptions interact.
Does a smaller position size guarantee smaller losses?
It limits your exposure, but price gaps and fast markets can still produce losses larger than planned. Smaller positions reduce the dollar effect of a given price move; a sufficiently large move can still cause a serious loss.
Are micro futures safer?
They’re smaller, which makes sizing easier and lets you take trades a full-size contract would rule out. Calculate leverage from the current margin requirement and contract value, so the same discipline applies.
Should I add to a winning position?
Some traders do, but each addition is a new trade that needs its own sizing calculation against the current exit. Recalculate the aggregate exposure and planned exit assumptions; earlier profits do not make the additional contracts risk-free.
Conclusion
Position sizing is not a formula to memorise and forget. It’s a habit: decide your dollar risk first, define your exit, do the arithmetic, round down, and check it against everything else you hold. It helps you see whether a proposed trade fits a chosen budget. It cannot guarantee survival, prevent gaps or turn an unprofitable strategy into a profitable one.
Trading futures involves substantial risk of loss. Past performance does not guarantee future results. This article is for education only and is not financial advice.
