# Position size from risk and stop > Turn the risk you allow and the distance to your stop, costs included, into a number of units to buy, then cap it by what the account can actually pay for. - Course: [Trading Basics: How It Works, How Not to Lose Everything](https://productovi.com/courses/trading.md) - Module: How much can I lose on one trade? - Lesson 11/32, ~26 min - Source: https://productovi.com/courses/trading/position-size ## The stop decides the size **Alex Tutor:** Back on your Pebble practice account, today we answer the question people usually ask first: how many shares? The answer comes last, from two numbers you already have. **Alex Tutor:** Number one: the risk in dollars. On 10,000 at 1%, that's 100. Number two: the risk per share, the distance from entry to stop plus the round-trip costs per share. **Nora:** I usually do it the other way: decide to put in, say, 3,000 dollars and divide by the price. **Alex Tutor:** That fixes the position, not the risk. 3,000 in Northwind with a stop 1.50 away risks about 93 dollars. 3,000 in a coin with a stop 15% away risks 450. Same 3,000, nearly five times the risk. **Alex Tutor:** Check that before we build the formula: same 3,000, two very different trades. > **Exercise:** Nora puts 3,000 into Northwind Foods at 48.00 with a stop 1.50 lower, and 3,000 into Spark Coin with a stop 15% under her entry. Which statement is true? ![Nora scoops a big handful of pebbles from a pile, while Alex and Marc stand by a table with a balance scale weighing a few grey pebbles against one blue pebble.](https://productovi.com/courses/trading/diagrams/m3-l3-scene.png) $$ \text{units} = \left\lfloor \frac{\text{account} \times \text{risk share}}{\text{entry} - \text{stop} + \text{costs per unit}} \right\rfloor $$ *Position size, rounded down to whole units* **Marc:** My Northwind idea: entry 48.00, stop 46.50 where the idea fails. Spread and commission come to about 0.05 a share for the round trip. **Sofia:** So each share risks 1.50 plus 0.05: 1.55. > **Marc's two trade plans** > > Account: 10,000 practice dollars on Pebble. Risk rule: 1% per trade, so 100 dollars. No borrowing. > > - **Northwind Foods:** entry 48.00, stop 46.50 where the idea fails, costs about 0.05 a share for the round trip. > - **Harbor 20:** entry 112.00, stop 111.40, costs 0.04 a share. The fund moves slowly, so the stop is close. > **Exercise:** Account 10,000, risk 1%, entry 48.00, stop 46.50, costs 0.05 a share. How many whole shares can Marc buy? **Marc:** Then I glance at the price tag: 3,072 out of 10,000. Fine. **Nora:** Why round down? 65 is closer. **Alex Tutor:** Because 65 × 1.55 = 100.75, over the limit. A rule you break by 75 cents today you'll break by 75 dollars next month. Always round down. **Alex Tutor:** Try a slightly different trade to see why: the stop and costs change, the rule doesn't. > **Exercise:** Account 10,000, risk 1%. A trade risks 1.40 a share to the stop, plus 0.05 of costs. How many whole shares can you buy without going over the limit? ## Forgetting the costs **Nora:** I'd have skipped the 0.05. It's tiny. **Alex Tutor:** Try it. Without costs you'd divide 100 by 1.50. Then check what the stop really costs once the spread and commission are paid. > **Exercise:** Nora sizes without costs: 100 / 1.50, rounded down. If the stop then fills, with the real 0.05 costs a share, what does she lose in dollars? **Alex Tutor:** And costs per unit differ a lot. On a share they may be a few cents. On a coin with a wide spread or after hours, they can be a real slice of the stop distance. **Sofia:** So the costs go into the formula every time, not only when they look big. ## When the stop is close **Marc:** Second idea, Harbor 20: entry 112.00, stop 111.40, costs 0.04. The fund moves slowly, so the stop is close. **Sofia:** Per share: 0.60 + 0.04 = 0.64. And 100 / 0.64 = 156.25, so 156 shares. **Alex Tutor:** Now multiply: 156 × 112.00 = 17,472. The whole account is 10,000. > **Exercise:** The risk formula says 156 shares of Harbor 20, worth 17,472, but the account holds 10,000 and Pebble's practice account has no borrowing. What should Marc do? **Nora:** So the formula gives a maximum, not a target? **Alex Tutor:** Exactly. Two ceilings: the risk you allow and the money you have. You take the smaller one. Taking less risk than 1% is never a problem. **Marc:** And putting almost the whole account into one fund is a choice to think about on its own. I'd probably take fewer. > **Exercise:** Marc caps Harbor 20 at 89 shares (entry 112.00, risk per share 0.64 with costs). If the stop fills, how many dollars does he lose? **Nora:** So a slow fund lets me buy more shares, and a jumpy coin fewer? **Alex Tutor:** Yes. A wild instrument needs a wide stop, so the size shrinks by itself. That's the formula protecting you without asking how you feel. **Sofia:** And for a short position? **Alex Tutor:** Same formula with the stop above the entry: stop minus entry plus costs. Same rounding down, same cap. > **Exercise:** With the same dollar risk, a closer stop means more shares. **Alex Tutor:** And Nora asked about shorts. Run the whole routine once for a short position. > **Exercise:** You open a short position at 30.00 with the stop above it at 31.20. Costs are 0.05 a share, the account is 10,000 and you risk 1%. How many whole shares? **Nora:** OK. Formula first, then the button. **Alex Tutor:** One last thing to put in your own words. **Marc:** The step people skip most is the cap. The formula looks so precise that they forget the price tag. > **Exercise:** A friend says: "I just buy 100 shares of everything. Simple." In 2–3 sentences, explain why the number of shares should come from the risk and the stop, using one example from this lesson. **Alex Tutor:** Two numbers, one formula, one cap, rounded down. That's the whole routine before every ticket, and it takes less than a minute. > **Key ideas** > > - **Units = risk in dollars ÷ (entry − stop + costs per unit)**, rounded **down**. > - Northwind: 100 ÷ 1.55 = 64 shares; the stop costs 99.20. Without costs: 66 shares and 102.30. > - Then cap by what the account can pay: Harbor 20 gives 156 by risk (17,472), capped at 89 (9,968), risk 56.96. > - The formula gives a maximum. Less risk is always allowed; borrowing to reach the number is not the point. > - For a short, the stop is above the entry; the rest is the same. > **Educational, not advice** > > This course explains how trading works; it never tells you what to buy or sell. Correct sizing limits the damage of each loss; it does not make a plan profitable, and gaps can still exceed the stop. Most people who trade lose money, and you can lose all of it. For taxes and rules, ask a licensed professional where you live. - Previous lesson: [The stop: where it goes and why](https://productovi.com/courses/trading/where-the-stop-goes.md) - Next lesson: [Case: size three trades](https://productovi.com/courses/trading/size-three-trades.md) --- Productovi Learning. Free, no sign-up needed to read.