Position size

How it works

Decide the most you will lose if the trade fails, then size the position so your stop-loss hits that number: size = (account x risk %) / (|entry - stop| x multiplier)

With $10,000, 1% risk, entry $50 and stop $48, you risk $100. Each share loses $2 at the stop, so the size is 50 shares. Risking a small, fixed percent keeps a losing streak survivable.

Grades reward the plan, not the outcome: a defined stop, risk of 2% or less, and a target at least twice your risk.

What position sizing does

Position sizing decides how many shares or contracts you take on a trade. The aim is simple: if your stop-loss is hit, you lose a planned amount instead of whatever the stop distance happens to cost. A trader who buys a round number of shares lets each stop decide the loss. A trader who sizes by risk keeps every loss about the same size, which makes results far easier to measure and survive.

A worked example

Say you have a $25,000 account and risk 1% per trade, so your risk budget is $250. You plan to buy at $40 with a stop at $38.50. Each share loses $1.50 if the stop hits, so the size is $250 / $1.50 = 166 shares (rounded down). If you widen the stop to $37, each share risks $3, and the size drops to 83 shares. The dollar risk stays at roughly $250 either way. Only the number of shares changes.

Choosing your risk percent

Many traders risk between 0.5% and 2% of their account per trade. The reason is the math of losing streaks. At 1% risk, ten losses in a row cost about 9.6% of the account. At 5% risk, the same ten losses cost about 40%, and recovering from that takes a 67% gain. Lower risk buys you time to find out whether your strategy actually works. The risk of ruin simulator on this site shows how risk size changes your odds of surviving a bad run.

Shares, options and futures

The multiplier field converts price moves into dollars. For stocks it is 1. For stock options it is 100, and you enter the option premium as entry and stop. For futures it is the dollar value of one point, such as $50 for the E-mini S&P 500 or $5 for the micro. The result is a number of contracts, which you round down to a whole number.

Common mistakes

Sizing from the account balance instead of the stop distance. Moving the stop further away after entry, which breaks the plan you sized for. Ignoring slippage and fees, which make real losses larger than planned. Stacking several correlated positions, such as three tech stocks, so one event hits them all at once.

Position sizing FAQ

What percent of my account should I risk per trade? There is no universal answer, but 0.5% to 2% is a common range. Newer traders often start at the low end while they learn how their strategy behaves.

Should I round the size up or down? Down, so a stop-out never costs more than you planned.

Does a wider stop mean a smaller position? Yes. The dollar risk is fixed, so a wider stop spreads it over fewer shares or contracts.

Does this account for slippage or gaps? No. A stop is not guaranteed to fill at your price, especially overnight or in fast markets, so real losses can exceed the plan.

Is this financial advice? No. It is a math tool for planning, and trading involves risk of loss.