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.
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.
On the desk
$10,000 account, 1% risk = $100. Entry $50, stop $48 → per-share risk = $2. Position size = $100 / $2 = 50 shares.