Position size answers the question “how much?” for every trade. Instead of buying a round number of shares or a size that feels comfortable, risk-based sizing starts from the amount you are willing to lose and the distance to your stop-loss. The result keeps each trade’s loss roughly constant, whatever the asset or volatility.
How it works
The standard formula:
Position size = (account balance × risk %) ÷ stop distance per unit
- Choose the risk per trade, for example 1% of the account.
- Find the stop level from the chart, at the price that invalidates the idea.
- Measure the distance from entry to stop in price per unit (per share, per pip per lot, per coin).
- Divide the money at risk by that distance.
A wider stop gives a smaller position; a tighter stop gives a larger one. Leverage affects the margin required, not the loss per unit, so it should never be the starting point for size.
Example
Account balance: $15,000. Risk per trade: 1%, or $150.
- Stock: entry $84.00, stop $81.50, distance $2.50. Size = $150 ÷ $2.50 = 60 shares (a $5,040 position).
- Crypto: entry 3,200, stop 3,040, distance 160. Size = $150 ÷ 160 ≈ 0.94 coins.
If both stops are hit, each loss is about $150 before slippage and fees. Ten losses in a row would cost roughly 10% of the account, a painful but recoverable drawdown. Risking 5% per trade instead, the same streak would take about 40% (compounded), which then needs a gain of around 67% just to get back to even.
Common mistakes
- Sizing first, stop second. Placing the stop wherever the chosen size “fits” ignores the chart.
- Same share count on every trade. Risk varies wildly with stop distance and volatility.
- Ignoring correlated positions. Three similar trades at 1% each are closer to one 3% bet.
- Forgetting gaps and slippage. Actual losses can exceed the planned amount.
In SnapPulse
SnapPulse calculates position size on your device from your balance, risk percentage and the distance to the stop it identifies on the scanned chart. Download SnapPulse, try the position size calculator, or read the position sizing guide.
Educational content — not financial advice.
Updated