How position sizing works
Position sizing starts with the amount you are willing to lose if the trade reaches its invalidation level. It does not start with buying power, conviction, or the maximum leverage an exchange offers. First set a risk budget as a percentage of current account equity. Then place the stop where the trade thesis is wrong. The calculator divides the cash risk by that price distance.
risk amount = account equity × (risk % ÷ 100)
units = risk amount ÷ |entry price − stop price|
notional exposure = units × entry price
forex standard lots = units ÷ 100,000For stocks and spot crypto, “units” means shares or coins. For forex, 100,000 base-currency units equal one standard lot; 10,000 equal one mini lot; 1,000 equal one micro lot. The pip readout uses 0.0001 for most pairs and 0.01 for JPY pairs. This simple quote-currency model is most accurate when the account currency matches the pair’s quote currency; cross-currency accounts may need a live conversion that this static tool deliberately does not fake.
Worked example: a $10,000 account
Suppose equity is $10,000 and the risk limit is 1%. The cash risk is $100. A stock entry at $100 with a stop at $95 has $5 of risk per share, so the position is 20 shares. Its notional value is $2,000, but the planned loss at the stop is still $100 before commissions, gaps, or slippage. Moving the stop to $90 doubles risk per share and halves the position to 10 shares; it does not change the $100 risk budget.
Leverage belongs after sizing. A 20-unit crypto position at $100 has $2,000 notional exposure. At 5× leverage, the displayed margin is $400, while the $5 stop distance still implies $100 of price risk. Liquidation rules, maintenance margin, fees, and stop slippage can make realized risk higher, so never treat margin as the maximum possible loss.
Position as a percentage of equity
This table assumes the stop distance is a percentage of entry. “50% of equity” means notional exposure equal to half the account, not a 50% loss. The highlighted row follows exact risk settings that appear in the table.
| Risk per trade | 2% stop | 5% stop | 10% stop |
|---|---|---|---|
| 0.5% | 25% of equity | 10% | 5% |
| 1% | 50% of equity | 20% | 10% |
| 2% | 100% of equity | 40% | 20% |
| 3% | 150% of equity | 60% | 30% |
Practical risk controls
A fixed percentage is a ceiling, not a target. Correlated positions can turn several individually sensible trades into one oversized portfolio bet. Gaps can bypass stop orders, and thin markets can fill well beyond the trigger. Account for commissions and expected slippage inside the risk budget when they are material. If a calculated size exceeds available cash, venue limits, or your own concentration cap, reduce it; do not move the stop closer merely to justify a larger position.
Use the drawdown recovery calculator to see why avoiding large losses matters. For non-market planning, the days between dates tool can measure holding periods. Travelers can estimate connectivity with the eSIM data calculator, while the TDEE calculator applies the same formula-transparent approach to calorie estimates.
Frequently asked questions
Why do traders often risk only 1% to 2% per trade?
A small fixed risk budget slows account damage during an ordinary losing streak and leaves room for several independent ideas. It is not a guarantee: correlated trades, gaps, slippage, and operational errors can combine losses. Many professionals use less than 1% when volatility or portfolio correlation is high.
How does a wider stop change position size?
A wider stop increases risk per unit, so the number of units falls in direct proportion when the cash risk budget stays fixed. Doubling the entry-to-stop distance halves the position. The stop should express trade invalidation first; position size is the variable that adapts.
Does leverage increase risk if I size from my stop?
Leverage reduces the margin needed to hold a given notional position, but it does not change the planned price loss between entry and stop. It can add liquidation risk, funding cost, and faster losses if no effective stop exists. Size from risk first, then check whether leverage is operationally safe.
Can I calculate position size without a stop-loss?
Not honestly with this method. Without a defined invalidation price, loss per unit is unknown, so a risk-based position size has no denominator. You can impose a separate worst-case loss assumption, but calling an arbitrary exposure limit a stop-based risk calculation would hide the most important input.