Ask a struggling trader what went wrong and you will hear about the strategy. Ask to see the account and you will almost always find the same thing instead: three or four trades that were far bigger than the rest. The strategy was survivable. The size was not.
Position sizing is the part of trading nobody posts screenshots of, and it is the part that decides whether a good system ever gets to pay you. This guide covers the one rule that keeps you in the game, the formula that turns it into a share count, and the mistakes that quietly break it.
Risk per trade is the number you actually choose
You do not choose whether a trade wins. You choose how much it costs when it loses. That single decision — your risk per trade — is the real position sizing question, and everything else follows from it.
Most professional guidance lands between 0.5% and 2% of the account per trade, with 1% as the common default. It sounds unambitiously small. That is the point: it is sized for the losing streak that is coming, not for the winner you are imagining.
Here is why the number has to be small. Losing streaks are not rare — they are arithmetic:
| Win rate | Chance of 5 losses in a row (in 100 trades) | Chance of 10 in a row |
|---|---|---|
| 60% | Very likely | Possible |
| 50% | Near certain | Likely |
| 40% | Near certain | Near certain |
At 1% risk, ten straight losses costs about 10% of the account and you keep trading normally. At 10% risk, the same ordinary streak takes roughly 65% of it — and now you need a 185% gain just to get back to where you started. The streak did not change. Only the size did.
The formula
Position size is not a feeling. It is a division:
Position size = (Account × Risk %) ÷ (Entry − Stop)
Three inputs, in this order:
- Account risk in money. $20,000 account × 1% = $200. This is the most you lose if the stop is hit.
- Stop distance per unit. Entry $50.00, stop $48.50 → $1.50 per share.
- Divide. $200 ÷ $1.50 = 133 shares (round down, always).
The position is worth 133 × $50 = $6,650 — a third of the account — but the risk is $200. Those are two different numbers, and confusing them is where most sizing errors begin.
The same trade, three markets
| Stocks | Forex | Crypto (5x) | |
|---|---|---|---|
| Account | $20,000 | $20,000 | $20,000 |
| Risk per trade (1%) | $200 | $200 | $200 |
| Entry | $50.00 | 1.0850 | $60,000 |
| Stop | $48.50 | 1.0800 | $58,200 |
| Stop distance | $1.50 | 50 pips | $1,800 |
| Size | 133 shares | 0.4 standard lots | 0.111 BTC |
| Position value | $6,650 | $40,000 | $6,660 (≈$1,332 margin) |
| Loss if stopped | $200 | $200 | $200 |
Notice the bottom row. Different instruments, wildly different position values and margin — identical risk. That is what a sizing rule buys you: your losses become the same size regardless of what you trade, so no single trade can decide your month.
Leverage is not position size
This is the most expensive misunderstanding in retail trading, and it lives mostly in crypto and futures.
Leverage decides how much margin you post. Your stop decides how much you lose. A 5x position with a tight stop can risk less than a 1x position with a wide one. Choosing "10x" is not choosing a risk level — it is choosing how close the liquidation price sits to your entry.
The order that keeps you safe is always the same: pick the stop from the chart, work out the size from the formula, and let the leverage be whatever it has to be to fit that size. Never the reverse. If the required leverage makes the liquidation price sit inside your stop, the trade is not sizeable — the exchange would close it before your own risk limit was ever reached. The Crypto PnL & Risk Calculator shows that liquidation price before you open the position.
Five ways good sizing quietly breaks
- Sizing by conviction. "This one is obvious" is the single most reliable predictor of an oversized loss. Your best-feeling trades are not statistically your best trades — your journal will show you that within a month.
- Sizing the position, not the risk. "I always buy $5,000 of something" means a tight-stop trade risks $100 and a wide-stop trade risks $700. Your worst losses end up being your least-planned trades.
- Widening the stop after entry. This converts a planned 1% loss into an unplanned 3% one. Moving a stop away from price is not risk management; it is the decision to take a bigger position after the fact.
- Forgetting fees, spread and slippage. On small stops these are not rounding errors. Add expected costs to the stop distance before dividing, or your real risk is quietly 10–20% above the plan.
- Counting correlated trades separately. Four long tech positions at 1% each is not four 1% risks; on a red market day it behaves like one 4% risk. Cap your total open risk — 3–5% across everything is a common ceiling.
When to size up
Sizing up is earned, and the evidence has to come from data rather than from a good week.
- Increase risk per trade only after a meaningful sample — 50 to 100 trades — shows positive expectancy. Before that you do not have a system, you have a small sample.
- Increase it by half a percent at a time, not by doubling.
- Size up the setup, not the day. If your journal shows one setup carries the account and another loses steadily, the fix is more size on the first and none on the second, not more size on everything.
- Cut back on a drawdown. Many desks halve risk after a set drawdown, then restore it after a fresh equity high. It shortens recoveries and, more importantly, it stops the tilt trade.
How to know you actually followed the rule
Every trader believes they size consistently. Almost nobody does, and the gap only becomes visible when the dollar risk of each trade sits in one column next to its outcome.
That is the check worth building the habit around: log the planned dollar risk before entry, and the realised loss after. When the second column is regularly bigger than the first, you have found your leak — stops moved, size added, or a trade taken without a stop at all.
The free Trading Journal records entry, stop, size and risk for each trade and then reports the numbers back — average loss versus planned loss, results by setup, and the drawdown your sizing has actually produced. Plan the trade with the Risk-Reward Calculator first, and the two columns should match.
Frequently asked questions
How much should I risk per trade? Between 0.5% and 2% of your account, with 1% a sensible default. The upper end belongs to traders with a proven, measured edge over at least 50–100 logged trades. Beginners should sit at the bottom of the range: the goal of the first hundred trades is to still be trading after them.
How do I calculate position size? Multiply your account by your risk percent to get the dollar risk, then divide by the distance between your entry and your stop. $20,000 × 1% = $200; a $1.50 stop gives $200 ÷ $1.50 = 133 shares. Round down.
Is the 1% rule too conservative for a small account? It feels that way, and raising it is how small accounts become smaller ones. On a $2,000 account 1% is $20, which is genuinely restrictive — the honest answer is that the account is small, not that the rule is wrong. Trade the rule, add to the account, and let position size grow with it.
Does position sizing change with leverage? No. Leverage changes the margin you post, not the amount you lose when the stop is hit. Size from the stop distance and treat whatever leverage that requires as an output, checking that liquidation sits well beyond your stop.
Should I use the same size for every trade? The same risk, yes — the share or contract count will differ on every trade because stop distances differ. Varying risk by setup is reasonable once your journal proves one setup outperforms; varying it by how confident you feel is how accounts break.
Set the size before the entry
Before your next trade, write down three numbers: the dollar risk you are allowed, the stop price, and the size the formula gives you. Then place the order for exactly that size. Do it for twenty trades and check the journal — the difference between planned and realised loss is your real edge, and it is usually available immediately.