Position sizing: the one formula that matters more than your entry

How to size a trade from your stop distance and a fixed risk per trade, with a worked example.

By AnkushAI Editorial, Education team · Oct 30, 2026 · 1 min read

Most traders spend their time on entries. Survival depends far more on how much you risk when you are wrong. Position sizing turns that into a number before you click buy.

The formula

Position size = (account size × risk per trade) ÷ (entry price − stop price)

Risk per trade is the share of your account you accept losing if the stop is hit. Many educators suggest a small fixed percentage, often 0.5% to 2%.

A worked example

These numbers are an example, not a recommendation:

• Account: $25,000. Risk per trade: 1%, so $250 at risk.
• Entry: $50. Stop: $48. Risk per share: $2.
• Size: $250 ÷ $2 = 125 shares.

If the stop is hit, the loss is about $250 plus slippage and fees, whatever the stock. A wider stop means fewer shares; a tighter stop means more. The dollar risk stays the same.

Why a fixed fraction works

• A losing streak is survivable. Ten 1% losses in a row leave you near 90% of your account, not wiped out.
• It removes the urge to size up after a win or to "make it back" after a loss.
• It makes results comparable, so your journal tells you whether the strategy works, not whether you got lucky on one big bet.

Options need extra care

With long options, the most you can lose is the premium, so many traders size by premium paid instead of a stop distance. Leverage makes small accounts feel big; sizing keeps that leverage under control.

Decide your risk before the trade. The market will not wait while you think about it.

Educational, not financial advice.

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