Risk & Money Management · Beginner · 5 min
Calculating position size
You can calculate a position size from account size, risk percentage and stop distance, and check whether the result is affordable.
As many as the stop allows
How many shares should you buy? Many people answer with "as many as I can afford" or "a round number that feels right". Neither answer says anything about the risk.
Position sizing turns your risk rule and your stop into one exact number. It is simple arithmetic, it takes less than a minute, and it is the step that connects everything in this chapter.
Risk ÷ distance = size
The position size is the number of shares, units or contracts in a trade. It follows from three inputs:
- Money at risk. Account size × your risk percentage. With 10,000 and a 1% rule, that is 100.
- Stop distance. The stop distance is the gap between entry and stop, per share. Entry 50.40 and stop 48.40 give 2.00.
- Position size = money at risk ÷ stop distance. Here: 100 ÷ 2.00 = 50 shares.
If the stop is hit, 50 shares × 2.00 = 100 are lost, exactly the amount the rule allows.
The formula makes the size flexible and the risk fixed:
- A wider stop means a larger loss per share, so fewer shares. A stop 4.00 away gives 25 shares.
- A tighter stop means more shares. A stop 0.50 away gives 200 shares.
In every case, the loss if wrong stays at 100. That is the point: the chart decides where the stop goes, your rule decides the money at risk, and the size adjusts.
For other products, the stop distance is converted into money per unit first. CME Group's education shows the same logic for futures: with a fixed amount at risk, a wider stop in ticks means fewer contracts.
Two checks belong after the calculation:
- Can the account pay for it? A tight stop can produce a position worth more than the account. In a cash account, cap the size at what you can pay for. Borrowing to reach the size brings margin and its own risks.
- Costs and slippage. In fast markets, the stop can fill worse. Some traders reduce the size slightly to leave room.
100 ÷ 2.00 = 50 shares
A fictional trader has 10,000 in a cash account and a 1% risk rule.
- Plan A: entry 50.40, stop 48.40. Distance 2.00. Size 100 ÷ 2.00 = 50 shares, worth 2,520.
- Plan B: the same entry with a stop at 50.15, just 0.25 away. Size 100 ÷ 0.25 = 400 shares, worth 20,160.
Plan B is twice the account, which a cash account cannot pay for. And a stop 0.25 away is likely inside the normal noise of the price. The trader keeps plan A. The position uses about a quarter of the account, and the loss if wrong is 100.
Common mistakes
- Choosing the size first, then the stop. That makes the stop follow your wish, not the chart.
- Using the account size instead of the risk amount. 1% of the account is the loss, not the position.
- Rounding up. Round the number of shares down, so the loss stays within the limit.
- Forgetting open positions. Several trades that move together add up to one larger risk.
The takeaway
Position size equals money at risk divided by stop distance. The stop comes from the chart, the risk from your rule.
Check yourself
Quick quiz
4 questions. Instant feedback, nothing is saved.
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1Tap the candle whose low decided where the stop sits.
Tap the chart.
The stop sits just below the low at 48.60. The distance from entry to stop, 2.00, is the divisor in the position size formula.
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2Account 10,000, risk 1%, entry 50.40, stop 48.40. How many shares?
Money at risk 100, stop distance 2.00. 100 ÷ 2.00 = 50 shares.
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3The stop moves from 2.00 away to 4.00 away. What happens to the position size at the same risk?
A wider stop means a larger loss per share, so fewer shares keep the money at risk the same.
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4The formula gives 400 shares at 50.40, worth 20,160, in a 10,000 cash account. What now?
A very tight stop can produce a position larger than the account. Moving the stop to fit the size reverses the logic.
of 4 correct.