Position Sizing
Calculating exactly how many shares, contracts, or lots to trade so that a stop-out costs no more than your chosen risk percentage.
Formula
Position Size = (Account × Risk%) / (Entry − Stop)
Position sizing is the process of determining the exact quantity to trade based on your account size, the distance to your stop-loss, and the maximum dollar amount you are willing to lose.
It transforms an abstract "I'll risk 1%" into a concrete number of shares. Over-sizing is the single most common account-killer — the math is simple, but emotion makes traders skip it.
- Divide account risk in dollars by the per-share risk (entry minus stop).
- The result is your maximum position size in shares/contracts.
Example
$10,000 account, 1% risk = $100. Entry $50, stop $48 → per-share risk = $2. Position size = $100 / $2 = 50 shares.
Related Terms
Average True Range Stop
A stop-loss level set at a multiple of the Average True Range to account for normal market volatility and avoid premature stop-outs.
IntermediateGap Risk
The risk that a market reopens far from its prior close — jumping past your stop — so the actual exit is much worse than the level you set.
IntermediateKelly Criterion
A formula that calculates the theoretically optimal fraction of capital to risk per trade to maximise long-run account growth without ruin.
AdvancedMargin Call
A broker demand to deposit more funds immediately because account equity has fallen below the required maintenance margin level.
BeginnerMoney Management
The set of rules governing how capital is allocated, how large positions are, and how losses are limited across a portfolio of trades.
BeginnerPortfolio Heat
The total percentage of account capital currently at risk across all open positions simultaneously.
IntermediateRisk Per Trade
The percentage or dollar amount of your account you are willing to lose on a single trade. Typically 0.5–2% for most traders.
BeginnerRisk-Reward Ratio
The ratio of potential profit to potential loss on a single trade. A 1:2 R:R means you risk $1 to make $2.
BeginnerScaling In
Adding to a position in increments as price moves in your favour, building size only when the trade is proving itself right.
IntermediateStop-Loss
A pre-set price level at which a losing trade is closed to cap the damage before it grows larger.
BeginnerVolatility-Based Sizing
Adjusting position size inversely to market volatility so that each trade has a consistent dollar risk regardless of how much the asset moves.
Intermediate