Position sizing and risk
Decide how much to lose before you enter, then size the trade to match. · about 6 min
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General education only. Not financial, tax or legal advice.
Most beginners choose a position size by feel. A more robust habit is to decide the dollar amount you’re willing to lose on the trade, then work backwards.
The formula
size = amount at risk ÷ (entry price − stop price)
Example: a $10,000 account risking 1% ($100), entry $50, stop $48 → $100 ÷ $2 = 50 shares (a $2,500 position). Our position-size calculator does this with a live price.
Why small risk per trade?
Many traders cap risk at around 1–2% of their account per trade. That is a common guideline, not a rule or advice. Losing streaks happen: ten losses in a row at 1% leaves roughly 90% of the account, while ten losses at 10% leaves about 35%.
R multiples
One “R” is the amount you risked. A trade that makes twice what you risked is +2R; a stopped-out trade is about −1R. Thinking in R makes trades comparable across assets and account sizes. The desk’s journal calculates R when you set a stop-loss on entry.
Key points
- Size = money at risk ÷ stop distance.
- A wider stop means a smaller position for the same risk.
- Express results in R so trades are comparable.
Checklist
Tick these off as you practise (saved in this browser).
Quick quiz
Pass mark: 2 out of 3. You can retry as often as you like.