Position sizing, explained
Position sizing is the most underrated skill in trading: it decides how much you put on so that a single loss can never hurt you. Get it right and a losing streak is a dip, not a disaster.
The formula
Shares = (account × risk %) ÷ (entry − stop)
A worked example (the 1% rule)
$25,000 account, risking 1% = $250. You buy at $50 with a stop at $48 → $2 of risk per share. $250 ÷ $2 = 125 shares. If the stop hits, you lose exactly $250 — 1% — no matter how the trade felt.
Why it beats gut feel
Sizing by risk (not by a fixed share count or dollar amount) keeps every loss the same size and ties directly to your risk of ruin. It's the discipline that lets positive expectancy actually compound.
Size your next trade in seconds:
Position size calculatorFrequently asked questions
How do you calculate position size?
Position size = (account × risk %) ÷ (entry − stop). Decide how many dollars you'll risk (e.g. 1% of the account), divide by your per-share risk (entry-to-stop distance), and that's how many shares/contracts to buy.
What is the 1% rule?
Risk no more than 1% of your account on any single trade. On a $25,000 account that's $250 of risk per trade — so a string of losses is survivable and no single trade can blow you up.
Why is position sizing so important?
It's the main lever over risk of ruin. With positive expectancy, bet size — not win rate — usually decides whether you compound or blow up. Sizing keeps losses small and consistent.
Does position size depend on the stop?
Yes — the wider your stop, the smaller your position for the same dollar risk. That's the point: it normalizes risk across trades with different stop distances.