How to Calculate Position Size in Trading

The short answer

Position size = (account × risk%) ÷ stop distance. You decide your dollar risk first (say 1% of the account), set your stop where the idea is wrong, and the formula spits out the size. The stop sets the size — so your risk stays fixed whether the stop is tight or wide.

Same dollar risk: a tight stop allows a bigger position, a wide stop a smaller one.

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The formula

Three inputs: your account size, the % you'll risk (1–2%), and the distance to your stop (in %). Dollar risk = account × risk%. Position size = dollar risk ÷ stop distance. That's the whole game — no guessing, no "feels like a big one."

A worked example

$1,000 account, risk 1% = $10 at risk. Your stop is 5% away from entry. Position size = $10 ÷ 0.05 = $200. If your stop were only 2% away, size = $10 ÷ 0.02 = $500 — bigger position, same $10 risk. The stop did the work.

Why size from the stop, not a gut feeling

Most blow-ups come from sizing by conviction ("this one's a banger") instead of math. Sizing from the stop keeps every trade's risk identical, so a losing streak is survivable and no single "sure thing" can hurt you. Boring, consistent sizing is the quiet superpower of traders who last.

Hamster's note: The day I let a formula size my trades instead of my mood, my equity curve stopped looking like an EKG. Same risk every time means the bad runs don't bury me and the good runs actually count.

Quick check — $1,000 account, risk 1%, stop is 5% away. Position size?

$200. Dollar risk = $1,000 × 1% = $10; position size = $10 ÷ 0.05 (the 5% stop) = $200. If the stop hits, you lose exactly $10 — your planned 1%.

Key takeaways

Position size = (account × risk%) ÷ stop distance.
Decide dollar risk first, set the stop, let the formula size it.
The stop sets the size — risk stays fixed, tight or wide.

Glossary: Position sizing Risk management Kelly criterion The Money

Hamster keeps it real: Correct sizing won't save a bad strategy — it just makes a losing run survivable instead of fatal. It's the seatbelt, not the steering wheel. You still have to drive, and you'll still crash sometimes.

FAQ

How do I calculate position size?

Position size = (account balance × risk %) ÷ distance from entry to stop-loss. First decide your dollar risk (e.g. 1% of the account), set your stop where the trade idea is wrong, then divide the dollar risk by the stop distance to get the position size.

How much should I risk per trade?

A common rule is 1–2% of your account per trade — the amount you lose if the stop is hit. Keeping per-trade risk small means a losing streak can't end your account, which is the main job of position sizing.

Why does the stop distance change my position size?

Because your dollar risk is fixed, a tighter stop lets you hold a larger position for the same risk, while a wider stop requires a smaller position. The stop distance, not your conviction, determines the size.

Example of position sizing?

With a $1,000 account risking 1% ($10) and a stop 5% from entry, position size = $10 ÷ 0.05 = $200. If the stop were 2% away, size = $10 ÷ 0.02 = $500 — a bigger position carrying the same $10 risk.