Position Size
Position size is how much of an asset you hold in a single trade. Traders usually calculate it from the amount they are willing to lose, the entry price and the stop-loss level, so that a losing trade costs a planned amount.
The basic formula
Start with your risk per trade: the money you accept losing if the trade fails, often expressed as a small percentage of your account. Then measure the distance between your entry price and your stop loss, the price at which you would exit. Position size equals risk per trade divided by that distance per unit.
This flips the usual question. Instead of asking how much you feel like buying, you ask how large the position can be so that hitting the stop loss costs exactly what you planned.
A worked example
Say your account is 10,000 dollars and you decide to risk 1% per trade, which is 100 dollars. You want to buy a coin at 50 with a stop loss at 45, a distance of 5 dollars per coin. Your position size is 100 divided by 5, which is 20 coins, worth 1,000 dollars. If the stop is hit, you lose about 100 dollars plus fees and any slippage. With a tighter stop at 48, the same risk would allow about 50 coins.
Why it matters
Position sizing is one of the core tools of risk management. Even a strategy that wins more often than it loses can wipe out an account if a few oversized trades go wrong. Keeping each loss small and predictable lets you survive a losing streak, which every trader eventually faces.
Common mistakes
A stop loss is not a guaranteed exit price. In fast markets or around gaps, the order can fill well below the stop, so the real loss can exceed the plan. Fees also add to every loss.
Leverage is another trap. Borrowed funds let you open a position larger than your account, but your risk is still set by position size and stop distance, not by the margin you post. If the liquidation price sits closer than your stop, the exchange closes the trade before your plan can work. Ignoring correlation, such as holding several positions that all fall together, also multiplies risk without it being obvious.
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Frequently asked questions
What percentage should I risk per trade?
There is no universal number. Many risk guides use small single-digit percentages so that a series of losses does not cripple the account, but the right level depends on your situation.
Is position size the same as leverage?
No. Position size is the total value of the trade; leverage only describes how much of it is funded with borrowed money.
Do I need a stop loss to size a position?
The formula needs an exit level. Without one you can still limit size, for example by capping each holding at a fixed share of your portfolio.
Related terms
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