Position Sizing: Risk Only 1% per Trade

Decide how much to lose first, then how much to buy

Beginners think “how much do I buy?” first; experienced traders think “how much do I lose if I'm wrong?” first. Fix risk per trade at about 1% of the account, and position sizing follows from the stop distance.

Where to put the stop is a technical question

A stop-loss belongs where “if price gets here, I was wrong”, not where “this is how much I can stand to lose”. How much you can stand to lose is handled by position size.

What if the position is bigger than the account?

With a very tight stop, the calculated position can be bigger than the account and you'd need leverage to afford it. If you don't want leverage, just buy as much as the account allows: your actual risk will then be smaller than planned, not bigger.

Key takeaways

• Position size = account × risk per trade ÷ stop distance per share, rounded down to whole shares.
• The further the stop, the fewer shares you can buy; the closer the stop, the more. Either way, the maximum loss per trade stays the same.
• A common approach is to risk only 0.5%–2% of the account per trade. Above 3%, an ordinary losing streak causes a very deep drawdown.
• If the calculated position is bigger than your capital, either accept a smaller actual risk or use leverage, and think it through before adding it.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Keep the defaults: $20,000 account, 1% risk, buy at $40, stop at $38. How many shares should you buy? What's the most you can lose?
2. Drag the stop to $34: how many shares now? Did the “Max loss” amount change?
3. Drag the stop to $39.5 (just $0.5 below the entry): how many shares should you buy? What share of the account is the position?
4. Keep the stop at $39.5 and raise the risk per trade to 2%: what warning does the explanation card show? What's the most shares you can buy without leverage?

Quiz and explanations

1. Your account is $20,000, risk per trade is 1%, you buy at $40 with a stop at $38. How many shares should you buy?

Answer: 100 shares.$20,000 × 1% = $200; risk per share is $2; $200 ÷ $2 = 100 shares.

2. You widen your stop from $2 to $4. To keep the same risk per trade, your position should…

Answer: Halve.Risk per share doubles, so the number of shares must halve.

3. Your account is $50,000, risk per trade is 2%, you buy at $25 with a stop at $23.50. What's the most shares you can buy?

Answer: 666 shares.$50,000 × 2% = $1,000; risk per share is $1.50; $1,000 ÷ $1.50 ≈ 666.7, rounded down to 666 shares.

Terms in this lesson

• leverage (Leverage): Controlling a large position with a small amount of margin; 1:100 means $1 controls a $100 position.
• position sizing (Position Sizing): Deciding how much to buy on each trade based on how much risk you can take.
• risk per trade (Risk per Trade): How much you're willing to lose if a trade hits its stop-loss, usually 0.5%–2% of the account.
• stop-loss (Stop Loss): Automatically closes a position when price moves against you to a preset level, capping your maximum loss.