Position sizing: a complete guide

Most traders spend their energy on where to enter. Position size receives a fraction of that attention, yet it is the variable that determines how much any single idea can cost.

The core formula

Fixed-fractional sizing risks the same percentage of the account on every trade:

risk amount   = account balance × risk %
stop distance = |entry − stop|
position size = risk amount ÷ stop distance

Example. A $10,000 account risking 1% has $100 of risk. Buying at 50.00 with a stop at 48.00 gives a stop distance of 2.00, so the position is 100 ÷ 2 = 50 units (a $2,500 position).

Notice that the position value ($2,500) is far larger than the amount at risk ($100). Those are different quantities and confusing them is one of the most common sizing errors.

Where leverage fits in

Leverage changes how much margin you post, not how much you risk. With 10× leverage the $2,500 position needs about $250 of margin — but if the stop is hit you still lose $100. Leverage only changes the risk if it pushes your liquidation price inside your stop. Always check that it doesn't.

Contract and pip values

For instruments quoted in points or pips, convert the stop distance into money first:

• Forex: stop in pips × pip value per lot
• Futures: stop in points × point value per contract
• Stocks and spot crypto: stop distance × units

Then divide the risk amount by the money-per-unit to get lots or contracts, rounding down.

Choosing a risk percentage

There is no universally correct number. Consider how many consecutive losses you would need to survive. At 1% risk, ten losses in a row leaves about 90.4% of the account; at 5%, it leaves about 59.9%. Losing streaks of that length are normal over a large sample, even for sound strategies.

Common mistakes

1. Sizing from a round number of units instead of from the stop.
2. Moving the stop after sizing — which silently changes the risk.
3. Ignoring fees and slippage on tight stops, where they can be a large share of the risk.
4. Increasing size after losses to "win it back".

Use the Position Size Calculator to check your numbers, and record the risk % of each trade in your journal so you can see whether your sizing is actually consistent.