Skip to content
GetProfitable
Search
Dictionary

Position sizing

Deciding how many shares or contracts to trade so that the distance to your stop equals your chosen dollar risk.

How a position size is worked outAccount size, risk per trade and stop distance feed into one box giving the number of shares.ACCOUNT SIZE$25,000your capitalRISK PER TRADE1%of the accountSTOP DISTANCE$0.50entry to stopPOSITION SIZE500 sharesrisk budget: $25,000 × 1% = $250position size: $250 ÷ $0.50 = 500 shares
Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.

Size is derived, not chosen. Decide the dollar risk-per-trade, measure the distance from entry to stop-loss, and divide. Wider stops mean smaller size; tighter stops mean larger size; the dollar risk stays constant.

This is the most direct control you have over drawdown. A trader who sizes correctly can be wrong many times in a row and still be in the game.

Example: $50,000 account, 1% risk = $500. Entry $40, stop $38, so $2 risk per share. Size = $500 / $2 = 250 shares, a $10,000 position.

Related: risk-per-trade, stop-loss, atr, kelly-criterion, lot

Educational only, not advice. Spotted an error? Post in Site Feedback.