position size
How many units you buy, set so that the distance to the stop times the size equals your chosen risk.
Position size is the number of units in a trade. It is calculated from the amount the account can risk and the distance between entry and stop.
First choose a risk amount that is a small share of the account. Then divide it by the planned loss per unit at the stop. The result is an upper estimate before costs; round down and check that the account can afford the position.
A larger position makes each price move matter more to the account. Costs, slippage, and leverage can change the outcome.
Example
On a $10,000 practice account, Nora sets a planned risk of 1%, or $10,000 × 0.01 = $100. A made-up Harbor 20 Index Fund unit costs $40, and her stop is $38, so the planned loss per unit is $2.
Position size = $100 ÷ $2 = 50 units. The position costs 50 × $40 = $2,000. If the stop fills at $38, the price loss is 50 × $2 = $100 before costs. Fees or a worse fill can increase the loss, so a cautious size would leave room for them.
Common mistakes
- Choosing a share count before calculating risk and stop distance.
- Rounding the size up instead of down.
- Leaving spread, fees, or a possible worse fill out of the calculation.
- Most people who trade lose money.
Learn it in the course
- 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.
- Why most beginners lose · Losing accounts are mostly explained by three ordinary habits, not bad luck: paying costs on too many trades, bets too big for the account and dropping the plan mid-trade. The numbers are in the journal.
- A one-page trading plan · Write five things on one page before you trade: what you trade, when you enter, where you exit, how big you go and when you do not trade at all.