Worked examples: stocks and futures

The formula is simple. The details that trip people up are rounding, contract multipliers and the fact that futures positions come in whole contracts. Work through these with a calculator, then check them against the position size calculator.

Stocks

Stock sizing is the cleanest case: one share moves one dollar per dollar of price change.

Example 1: a long. Account $25,000, risk 1%.

1. Dollars at risk = 25,000 × 0.01 = $250.
2. Entry $42.30, stop $40.30. Distance = $2.00.
3. Shares = 250 ÷ 2.00 = 125.
4. Position value = 125 × $42.30 = $5,287.50, which is 21% of the account. Under a 25% cap, so it passes.
5. If the stop fills at $40.30: 125 × $2.00 = $250 lost. Exactly the plan.

Example 2: a short. Same account and risk.

1. Dollars at risk = $250.
2. Entry $18.60, stop $19.35. Distance = $0.75.
3. Shares = 250 ÷ 0.75 = 333.3. Round down to 333.
4. Position value = 333 × $18.60 = $6,193.80, which is 24.8% of the account. Just under the cap.
5. Loss at stop = 333 × $0.75 = $249.75.

Always round down. Rounding 333.3 up to 334 would risk $250.50, over the plan by fifty cents. That is trivial today; the habit of rounding up is not.

Example 3: the stop is too tight for the cap. Account $10,000, risk 1% = $100. Entry $80.00, stop $79.60, distance $0.40.

Shares = 100 ÷ 0.40 = 250. Position = 250 × $80 = $20,000. That is 200% of the account. The stop math says 250 shares; the 25% cap says at most $2,500 ÷ $80 = 31 shares. Take 31 shares (risking 31 × $0.40 = $12.40) or, more sensibly, recognise that a 0.5% stop on an $80 stock is noise and find a wider, more meaningful stop.

Futures: whole contracts and multipliers

A futures contract has a fixed dollar value per point of price movement, and prices move in minimum increments called ticks. Sizing is:

contracts = dollars at risk ÷ (stop distance in points × dollar value per point)

Then round down to a whole number. Zero is a valid answer; it means you cannot take this trade at this size.

Specifications can change; confirm them on the exchange's site before trading a contract for the first time.

Example 4: ES versus MES. Account $10,000, risk 1% = $100. Stop is 8 points away.

• ES: 8 × $50 = $400 per contract. 100 ÷ 400 = 0.25 contracts. Round down: 0. You cannot trade ES with this stop on this account.
• MES: 8 × $5 = $40 per contract. 100 ÷ 40 = 2.5. Round down: 2 contracts, risking 2 × $40 = $80.

Micro contracts exist precisely so that small accounts can size correctly. A trader who takes 1 ES here is risking $400, or 4% of the account, four times the plan.

Example 5: NQ versus MNQ. Account $50,000, risk 0.5% = $250. Stop is 30 points away.

• NQ: 30 × $20 = $600 per contract. 250 ÷ 600 = 0.42. Round down: 0.
• MNQ: 30 × $2 = $60 per contract. 250 ÷ 60 = 4.17. Round down: 4 contracts, risking $240.

Example 6: crude oil. Account $20,000, risk 1% = $200. Entry $78.40, stop $77.80. Distance = $0.60, which is 60 ticks.

• CL: 0.60 × $1,000 = $600 per contract. 200 ÷ 600 = 0.33. Round down: 0.
• MCL: 0.60 × $100 = $60 per contract. 200 ÷ 60 = 3.33. Round down: 3 contracts, risking $180.

Notice the pattern: at 0.5% to 1% risk with realistic stops, accounts under about $50,000 almost never qualify for a single full-size contract. That is not a limitation to work around. It is the arithmetic telling you which product you belong in.

Key idea: In futures, the stop distance times the point value is the risk per contract. If that number is bigger than your risk budget, the answer is zero contracts, not one.

Options: a note

Options are covered properly in their own course, but the sizing principle carries over. For a long option, the most you can lose is the premium, so the simplest rule is: premium paid on the position ≤ dollars at risk. A $100 risk budget with a contract priced at $1.40 ($140 per contract, since each covers 100 shares) allows zero contracts. Yes, zero; many beginner option trades are oversized by definition.

Try it: Run Examples 4 to 6 through the position size calculator and confirm you get 2, 4 and 3 contracts. Then change the account size to $5,000 and see how many of the trades survive.

Recap

• Stocks: shares = risk ÷ (entry − stop), round down, then check the position cap.
• Futures: contracts = risk ÷ (stop in points × $ per point), round down to a whole number; zero is a real answer.
• Micro contracts are one-tenth the size of the full contract and exist so smaller accounts can size correctly.
• Accounts under roughly $50,000 usually cannot take a full-size index or energy contract at 1% risk.
• Options: total premium on the position must fit inside the risk budget.