Position sizing is how you decide how many shares or contracts to buy on a trade so that a single loss never damages your account. It’s the difference between risking 1% and risking 20% — and it matters far more than your entry.
You can have a great strategy and still blow up if you size wrong. Position sizing is the mechanism that keeps you in the game long enough for your edge to play out.
Why fixed-dollar risk beats gut feel
Amateurs decide size by conviction: “I really like this one, I’ll go big.” That’s how one bad trade wipes out ten good ones. The professional approach flips it — you decide in advance how much you’re willing to lose per trade (usually 1–2% of the account), then let the stop distance dictate the share count. Conviction never touches your size.
How to calculate your position size
Three inputs: your account size, your risk percentage, and your stop distance. Multiply account by risk percentage to get your dollar risk. Divide that by the distance from entry to stop. The result is your position size. Every trade risks the same dollar amount regardless of price or volatility.
| Account | Risk 1% | Stop Distance | Position Size |
|---|---|---|---|
| $5,000 | $50 | $1.00 | 50 shares |
| $25,000 | $250 | $2.50 | 100 shares |
| $50,000 | $500 | $5.00 | 100 shares |
The MTC take: sizing is risk management you do before the trade
Traders obsess over when to get in. We obsess over how much to put on. Because the market decides your entry’s outcome, but you decide your size — and that’s the one variable fully in your control. Size small enough that no single trade can end you, and you turn trading from a gamble into a process you can repeat for years.
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Frequently Asked Questions
What is position sizing in trading?
Position sizing is the process of deciding how many shares or contracts to trade so that a single loss stays within a fixed, small percentage of your account. It’s calculated from your account size, chosen risk percentage, and stop distance — not from how confident you feel about the trade.
How much should I risk per trade?
Most professional traders risk 1–2% of their account per trade. At 1%, you’d need 100 consecutive losses to wipe out — virtually impossible with any real edge. Risking more than 2% exposes you to account-ending drawdowns during the normal losing streaks every strategy goes through.
How do I calculate position size?
Multiply your account size by your risk percentage to get your dollar risk. Divide that by the distance between your entry and your stop-loss. The result is the number of shares or contracts to trade. This keeps your dollar loss identical on every trade regardless of price.
