Most traders blow up their accounts not because they pick bad trades, but because they bet too big on the wrong ones. Position sizing is the quiet skill that keeps you in the game long enough to let your edge play out. The good news: it comes down to one simple formula.
The core formula
Every position-sizing decision answers a single question — how many units can I buy or sell so that being wrong costs me only a small, fixed slice of my account? The formula is:
There are two halves. The top, account × risk %, is your risk amount — the cash you accept losing if the trade fails. The bottom, entry − stop-loss, is your per-unit risk — how much you lose on each share or unit if price reaches your stop. Divide one by the other and you get the largest position that respects your risk limit.
A worked example
Say you have a $10,000 account and you follow the common rule of risking 1% per trade:
- Risk amount: 1% of $10,000 = $100. That's the most you'll lose on this trade.
- Entry price: $50.
- Stop-loss: $48, so your per-unit risk is $2.
- Position size: $100 ÷ $2 = 50 shares.
Buy 50 shares at $50 and your position is worth $2,500. If price drops to your $48 stop, you lose exactly $100 — your planned 1%. No emotion, no guessing. Change any input and the size changes with it: a tighter stop lets you buy more shares for the same risk, a wider stop means fewer.
Why 1–2% is the sweet spot
Risking a small percentage per trade means a losing streak can't wipe you out. At 1% risk, even ten losses in a row only draw your account down by roughly 10%. Push that to 10% per trade and the same streak is catastrophic. Small, consistent risk is what separates traders who last from those who don't.
Skip the mental math
You don't need to run these numbers by hand on every trade. Drop your account size, risk percentage, entry, and stop into the free Trade Risk Calculator on the homepage and it returns your exact position size instantly — plus your risk amount, total position value, and reward-to-risk ratio if you add a take-profit.
Ready to size your next trade properly?
Open the Trade Risk Calculator →This article is for educational purposes only and is not financial advice. Trading carries a substantial risk of loss.