Position size, sized for you.

How the position size formula works

Position sizing inverts the usual question. Instead of asking how much you want to buy, it asks how much you can afford to lose, then works backwards to the share count that enforces it. The dollar risk comes first: account × risk%. The distance from entry to stop tells you what one share puts at stake. Dividing the first by the second gives the only size that makes those two numbers agree.

The consequence is that a tight stop buys you a large position and a wide stop forces a small one — with identical dollar risk in both cases. Traders who size by conviction or by a fixed share count are letting stop distance silently scale their risk up and down, which is why two trades that "felt the same" can produce wildly different losses.

A worked example

Take a $25,000 account risking 1% per trade — $250 of acceptable loss. The setup is an entry at $48.50 with a stop at $46.75, so each share carries $1.75 of risk. $250 ÷ $1.75 = 142.8 shares, rounded down to 142.

Those 142 shares cost $6,887 — about 27% of the account tied up in a single name. That gap between 27% of capital deployed and 1% of capital at risk is the part most people misread. Capital committed and capital at risk are different numbers, and only the second one is bounded by the stop.

Where this calculator misleads you

The formula assumes your stop fills at your stop price. It often will not. A stop is an instruction to become a market order, so gaps, thin books, and fast tape all fill you worse than planned — and the 1% you sized for becomes 1.4% or worse. Overnight gaps in single names are the common version of this; earnings dates are the predictable one.

It also treats each trade in isolation. Five positions each risking 1% are not five independent 1% risks if they are all long the same sector on the same thesis — correlated positions behave like one larger trade when the market moves against the group. Size the theme, not just the ticker.

Finally, the output is a ceiling rather than a recommendation. Liquidity, margin requirements, and your own concentration limits can all argue for less than the formula allows. Nothing about the math says a position this size is a good idea.

Terms on this page

Risk per share

The absolute distance between entry and stop. The denominator of the sizing formula, and the thing a wider stop inflates.

1R

One unit of initial risk — the dollar amount between entry and stop, multiplied by size. The unit trade results are best measured in.

Notional

Total market value of the position (shares × price). Usually far larger than the amount at risk, and frequently confused with it.

Slippage

The difference between the price you expected and the price you got. Turns a planned 1% loss into a larger realised one.

Gap risk

An open beyond your stop, leaving no opportunity to exit at the intended level. The main reason realised risk exceeds planned risk.