Position Size Calculator

Why Position Sizing is the Holy Grail of Trading

The difference between a professional trader and a gambler is position sizing. Amateurs look at a trade and ask, "How much money will I make?" Professionals look at a trade and ask, "How much do I lose if I am wrong?"

If you risk 10% of your account on every trade, 10 consecutive losses (which is statistically inevitable over a long enough timeline) will blow your entire account. If you risk 1%, it would take you 100 consecutive losses to blow up. Position sizing mathematically guarantees your survival in the market.

The Position Size Formula

To figure out exactly how many shares or cryptocurrency coins to buy, you can use the standard position sizing formula:

• Account Balance: The total amount of trading capital you have available.
• Risk Percentage: A strict rule (usually 1-2%) representing the maximum pain you can take on a single trade.
• Stop Loss: The price point at which the trade thesis is invalidated and you must exit.

Understanding Effective Leverage

Sometimes, you might find a trade setup with a very tight stop loss (e.g., 0.5% away from entry). Because the stop is so tight, the formula will tell you to buy a massive position to fulfill your 1% risk threshold.

Example: If you have $10,000, your 1% risk is $100. If your stop loss is only $1 away from a $100 entry (-1%), you need to buy 100 shares. Total position value = $10,000 (1x leverage). But if your stop loss is $0.10 away (-0.1%), you'd need to buy 1000 shares to risk $100. Total position value = $100,000.

If your suggested Position Value exceeds your Account Balance, it means you will need Margin (Leverage) to execute the trade, which exposes you to liquidation risks. Our calculator highlights your "Effective Leverage" to warn you if a tight stop loss is forcing you into a dangerously oversized position.

Frequently Asked Questions (FAQ)