Most traders spend their energy on entries. Professionals spend it on position sizing, because the size of a position decides how much a losing trade costs you. And every strategy has losing trades. This guide gives you the formula, three worked examples and the mistakes that quietly blow up accounts.
The core idea: risk a fixed fraction, not a fixed size
Instead of buying "100 shares" or "0.1 BTC" every time, you decide how much of your account you are willing to lose if your stop-loss is hit, then work backwards to the size.
This is often called fixed fractional position sizing. Many traders use 0.5%–2% of equity per trade. The exact number is a personal choice. The point is that it's consistent and decided before the trade.
The position sizing formula
- Amount at risk = Account equity × Risk %
- Risk per unit = |Entry price − Stop price|
- Position size (units) = Amount at risk ÷ Risk per unit
- Position value = Position size × Entry price
Equivalent shortcut: Position value = Amount at risk ÷ Stop distance %.
That's it. The stop determines the size, not the other way round.
Worked example 1: a stock trade
- Account equity: $10,000
- Risk per trade: 1% → amount at risk = $100
- Buy at $50.00, stop at $47.50
- Risk per share = $50.00 − $47.50 = $2.50
- Position size = $100 ÷ $2.50 = 40 shares
- Position value = 40 × $50 = $2,000
If the stop is hit, you lose 40 × $2.50 = $100, exactly 1% of the account. The position is only 20% of your equity, so no leverage is needed.
Worked example 2: a crypto trade with a tight stop
- Account: $5,000, risk 1% → $50
- Long ETH at $3,000, stop at $2,940 (2% below)
- Risk per unit = $60
- Size = $50 ÷ $60 = 0.8333 ETH
- Position value = 0.8333 × $3,000 = $2,500
Same rule, different market. A tight stop gives a larger position. A wide stop gives a smaller one. Your loss at the stop stays $50.
Worked example 3: a wide stop on a volatile coin
- Account $5,000, risk 1% → $50
- Entry $2.00, stop $1.60 (20% below)
- Risk per unit = $0.40
- Size = $50 ÷ $0.40 = 125 coins → position value $250
Wide stop, small position. That is exactly how position sizing protects you in volatile markets.
Try your own numbers in the free position size calculator. It also shows the leverage needed if the position is bigger than your equity.
Including fees
Fees make each loser a bit worse. If you pay a taker fee on entry and exit, the real loss at the stop is:
Loss ≈ Size × (Risk per unit + Entry × fee + Stop × fee)
Example: 0.8333 ETH, 0.05% fee each way: fees ≈ 0.8333 × (3,000 + 2,940) × 0.0005 ≈ $2.47. To keep the total loss at $50, reduce the size slightly: $50 ÷ ($60 + $2.97) ≈ 0.794 ETH. With frequent trading, ignoring fees means you consistently risk more than you think.
Where leverage fits in
Leverage does not change your risk if you size correctly. It only changes the margin needed to hold the position.
In example 2, the $2,500 position could be held:
- with no leverage, using $2,500 of your $5,000, or
- at 5x, using $500 of margin.
Either way the loss at the stop is $50. What leverage does change is where the exchange liquidates you. Always check that your liquidation price is beyond your stop. See how to calculate liquidation price for the formula.
Pair sizing with reward:risk
Position sizing controls how much you lose. Your reward:risk ratio and win rate decide whether you make money over many trades.
If your target is $3,120 on the ETH trade (+$120 per unit) and the stop costs $60 per unit, reward:risk is 2:1. With 2:1 you only need to win more than 33.3% of trades to break even before fees. The break-even win rate guide explains the math. Check a setup with the risk/reward calculator.
Common mistakes
- Choosing size first, then placing the stop where the loss "feels OK". The stop should sit where your idea is invalidated, not where it fits your size.
- Moving the stop further away after entry. This silently raises your risk above your plan.
- Using the original account size after a drawdown. Fixed fractional sizing works because your size shrinks as equity shrinks. Recalculate from current equity.
- Correlated positions. Five 1% trades on five highly correlated coins behave more like one 5% trade.
- Ignoring slippage on stops. Stop-market orders can fill worse than the stop price in fast markets. Size a little smaller if your market gaps.
How big should your risk % be?
There is no universally correct number, and anyone who quotes one "proven" percentage is guessing about your situation. Think about the sequence of losses you could realistically hit. At 1% per trade, ten losses in a row cost roughly 9.6% of the account (because each loss is 1% of a smaller balance). At 5% per trade, the same streak costs about 40%, and you'd need a gain of roughly 67% to recover. The loss recovery calculator shows why big drawdowns are so hard to climb out of.
A repeatable checklist
- Entry price and stop-loss price (from your analysis)
- Current account equity
- Risk % for this trade
- Size = (Equity × Risk %) ÷ |Entry − Stop|
- Check margin needed and liquidation price
- Record it all in your journal
Doing this by hand works, but it is slow and error-prone when the market moves. The Position Size & Risk Calculator template for Excel and Google Sheets does steps 4–5 for every trade and keeps a running risk dashboard.