Why Position Sizing Matters More Than Your Win Rate
You can have a 70% win rate and still blow up your account. How? By sizing one trade so large that a single loss wipes out all your profits. Position sizing isn't glamorous, but it's the difference between survival and ruin.
The 1-2% Rule
The most widely accepted rule in trading risk management: never risk more than 1-2% of your account on a single trade.
On a $10,000 account:
- 1% risk = $100 maximum loss per trade
- 2% risk = $200 maximum loss per trade
This means if you have a stop loss 50 cents away from your entry on a stock, and your max risk is $100, you can buy 200 shares ($100 ÷ $0.50).
The Position Sizing Formula
Position Size = Risk Amount ÷ (Entry Price - Stop Loss Price)Where Risk Amount = Account Balance × Risk Percentage
Example:
- Account: $25,000
- Risk: 2% = $500
- Entry: $150.00
- Stop Loss: $147.50
- Risk per share: $2.50
- Position size: $500 ÷ $2.50 = 200 shares
Position Sizing by Asset Class
Stocks
Straightforward — shares = risk ÷ per-share risk. Factor in commissions.
Forex
Lot sizing depends on pip value. A standard lot on EUR/USD moves $10 per pip. If your stop is 20 pips and your risk is $100, you'd trade 0.5 standard lots.
Futures
Each contract has a fixed dollar-per-tick value. ES (S&P 500 futures) moves $12.50 per tick. Calculate ticks to stop, divide your risk budget by that amount.
Crypto
Same formula, but factor in leverage. At 10x leverage, a 1% position size becomes 10% exposure.
Common Position Sizing Mistakes
- Sizing based on conviction — "I feel really good about this one" is not a risk management strategy
- Ignoring slippage — your actual fill may be worse than planned
- Adding to losers — averaging down without a plan violates your original risk parameters
- Forgetting fees — commissions and spreads are part of your cost basis
Automate It
Manual position sizing is tedious and error-prone under pressure. Use a calculator that does the math instantly so you can focus on execution. Our free position size calculator covers stocks, forex, futures, crypto, and options.