Including the spread in my risk calculation, the small number that changed my size

[Fairman]

Including the spread in my risk calculation, the small number that changed my size

my position size used to come from the distance between my entry and my stop. It sounds right, but it ignores the spread, which matters a lot on a tight scalp.

If I'm long, my stop triggers on the bid, but I enter at the ask. So the real distance I can lose is the stop distance plus the spread. On a stop of a few pips, a spread of one pip is a big share. If I size using the stop distance only, my actual risk is higher than I think, and the gap changes with the spread at the time.

Now I add the spread to the stop distance when I calculate the lot size. If the spread is wider than usual, the lot size gets smaller automatically, or I skip the trade. It makes my risk consistent in money terms and takes the guess out of it.

The effect is small on most trades but it showed up in my records. My average loss was slightly above the planned amount before I did this, and now it's close. It also reminded me that wide spread moments are costly in more than one way.

[Fairman]

This is a small change with a real effect. I do the same, and I also use the average spread at my trading time rather than the current one when I plan the trade in advance, then recheck at entry. If the spread at entry is clearly wider than average, I skip rather than size down, because a wide spread usually means something is going on. With a really tight stop, leaving the spread out can make the real risk noticeably higher than planned.

[Fairman]

Worth noting that this matters more for longs than shorts on some setups. When you go long, the fill is at the ask while the exit happens on the bid price. Going short flips it, selling at the bid and getting stopped at the ask, so it costs you there too. Either way it adds to the distance. Including it in the calculation makes every trade's risk honest. I put the spread into the calculator as its own field so I cannot forget it when I am rushing before an entry.