Fixed Ratio Money Management in Forex: a practical guide

Introduction — why position sizing matters

Position sizing is one of the few parts of trading you can control consistently. How many lots you trade on each setup determines how fast your account grows — and how quickly it can shrink. The fixed ratio method is a systematic way to scale position size as an account earns profits. It’s built to reward winning runs while limiting how quickly size expands, and many traders use it as an alternative to simple percentage-based sizing. Below I explain how the method works, how to calculate sizes, and what to watch out for in real-world forex trading.

What the fixed ratio method is

At its core, fixed ratio money management ties increases in position size to increments of profit rather than to a fixed percentage of account equity on every trade. The approach is most closely associated with Ryan Jones, who described a system where you only add an extra contract (or lot) after the account has gained a set amount of profit — a number called the delta. The method preserves discipline: you don’t automatically raise size after every small gain, you wait until the account has moved through a pre-set profit boundary before stepping up.

There are two commonly seen versions of the idea in practice. One is the incremental formula Jones described: you calculate the equity thresholds at which you add another contract, using a delta that determines aggression. The other popular representation uses a square‑root formula to translate account balance and delta into a recommended number of units. Both share the same philosophy: increase size only when the account has produced enough gains to justify it.

How it works — the delta and the math

Delta is the central parameter. It represents the dollar (or account-currency) amount of realized profit required to increase position size by one trading unit. A small delta makes the method aggressive (size increases quickly), while a large delta makes it conservative.

Two practical ways traders apply the math:

1. The incremental (Jones) ladder. Start from your current “required equity” level and add the product of the current number of contracts and the delta to find the next equity level at which to add a contract. In formula form:

next_threshold = current_threshold + (current_contracts × delta)

For example, if your starting account is $50,000 and you set delta = $5,000, then to move from 1 to 2 contracts you need total equity of $50,000 + 1×$5,000 = $55,000. To move from 2 to 3 contracts you need $55,000 + 2×$5,000 = $65,000, and so on. The required profit to add the next contract grows as you trade larger sizes.

2. The units (square-root) rule. Some traders use a compact formula to compute how many units to trade at any equity level:

Units = sqrt(AccountBalance / (2 × Delta))

This formula gives a smooth, gradual scale of position sizes as the account grows. Because the result is often fractional, you round to the nearest whole contract or to the smallest lot size your broker allows (micro/milli/standard lots in forex).

Both forms are designed to slow the growth of position size relative to percentage-based compounding, preventing explosive increases while still letting winners compound.

Concrete examples

Imagine two concrete cases to see the difference in practice.

Example A — the square-root formula:
Suppose you have $10,000 and choose delta = $1,000. Compute Units = sqrt(10,000 / (2 × 1,000)) = sqrt(5) ≈ 2.24. You would trade 2 units (rounding down to the nearest whole contract or nearest allowable lot). If the account grows to $13,000, Units = sqrt(13,000 / 2,000) = sqrt(6.5) ≈ 2.55, which may prompt an increase to 3 units when your broker or rules allow rounding up.

Example B — Jones-style thresholds:
Start balance $50,000, delta = $5,000, and initial trade size 1 contract. The first threshold to add a contract is $50,000 + 1×$5,000 = $55,000. If you reach $55,000 in equity you move to 2 contracts. The next threshold becomes $55,000 + 2×$5,000 = $65,000, requiring a larger cumulative profit to go to 3 contracts. This ladder means that the jump from 1→2 is easier to reach than later jumps, which require increasing pockets of profit.

When applying either method in forex you must convert “units” or “contracts” into lot sizes (micro, mini, standard) and ensure stop-loss distance, pip value and margin are factored so that an added contract doesn’t create unacceptable risk.

How fixed ratio compares to fixed‑fraction (percentage) sizing

Fixed‑fraction sizing risks a constant percentage of account equity on every trade. That makes position size respond immediately to account moves and keeps risk proportional at all times. Fixed ratio instead only increases size when your account has accumulated a specified amount of profit, so it tends to be more conservative in the long run and more aggressive during winning streaks (because size increases only after profit milestones).

The two main practical differences are timing and sensitivity. Fixed‑fraction adjusts every trade; fixed ratio waits for milestones. Fixed ratio can accelerate growth during sustained winning sequences but can also leave you with relatively larger positions if a significant drawdown follows a recent size increase. Neither method fixes the quality of trade selection — good sizing cannot rescue a losing trading edge.

Practical implementation notes

Implementing fixed ratio in live forex trading requires some operational steps. First, decide your delta based on how fast you want to scale and how much drawdown you can tolerate. A conservative trader chooses a larger delta; an aggressive trader chooses a smaller one. Second, pick whether you will use the ladder (threshold) approach or the units formula; both are acceptable but have slightly different scaling behaviors. Third, translate units or contract counts into real lot sizes, adjusting for pip value and your stop-loss so the dollar risk per trade remains acceptable.

Keep an eye on rounding and minimum lot steps. If your calculations say “2.3 contracts” you must round to the nearest tradable lot size; when account size is small, micro lots are useful to implement gradual increases. Also define clear rules for what happens when you suffer a drawdown: some traders revert to a fixed‑fraction sizing or reduce size until equity recovers to the last threshold rather than blindly following the ladder down.

Practical tips to consider:

• Start conservatively while you test the system and use backtests or paper trading before committing real capital.
• Combine fixed ratio with explicit stop-loss levels and position‑specific risk checks so that a single loss cannot wipe out the account.
• Recalculate thresholds and unit counts at agreed intervals (after closed-trades-only, at end-of-week, or end-of-month) to avoid intraday over-adjustments.
• Automate the calculations with a spreadsheet or simple script to avoid arithmetic mistakes.

Risks and caveats

Fixed ratio is a disciplined, formulaic approach to scaling, but it comes with trade-offs. Choosing a delta is subjective: there is no universal “optimal” delta — too small and you risk stepping up size too quickly; too large and compound growth is muted. The method also does not incorporate market volatility or the varying risk of individual setups; it treats profit accumulation as the driver rather than per‑trade risk. That can lead to situations where the system increases size after a lucky run and then suffers a damaging reversal.

Importantly, no money-management scheme can make a losing trading strategy profitable. Fixed ratio helps manage how you scale winners and losers, but your edge still depends on strategy, execution, and discipline. Always test the method on historical data and in paper mode, keep position risk reasonable, and accept that drawdowns are part of trading. Trading carries risk; this article is educational and not personalized financial advice.

Key Takeaways

• Fixed ratio links increases in position size to fixed profit increments (delta), so you only add size after reaching predefined equity milestones.
• Two common implementations are the Jones-style threshold ladder and the square-root units formula; both control how quickly you scale.
• The method can accelerate growth during winning streaks but requires careful choice of delta, stop-loss discipline, and attention to drawdowns.
• Test on a demo account, automate calculations where possible, and remember trading carries risk — this is not personalized advice.

References

• https://insights.primecodex.com/fixed-ratio/
• https://tradeciety.com/advanced-money-management-techniques
• https://www.straightforex.com/advanced-forex-course/money-management/fixed-ratio/
• https://www.daytrading.com/fixed-ratio-betting
• https://www.reddit.com/r/Forex/comments/3yw6ry/fixed_ratio_money_management_system_by_ryan_jones/
• https://www.quantifiedstrategies.com/fixed-ratio-position-sizing/
• https://learningcenter.fxstreet.com/education/learning-center/unit-3/chapter-3/money-management-models/index.html