Position size
Position size is the trade size at which hitting your stop-loss costs a pre-chosen amount. Formula: money at risk / distance to the stop.
How it works
First you decide how much you are willing to lose on one trade, usually 0.5–2% of your account. Then you place the stop-loss where the trade idea stops working. Only then do you calculate the size: the money at risk divided by the distance from entry to stop.
This way the size adapts to the market, not to your mood. A wide stop means a smaller position, a tight stop means a larger one, and the loss in money at the stop stays the same.
Leverage does not change this calculation: it only affects how much margin (collateral) is locked. Your risk is set by the position size and the stop distance, not by the leverage.
Risk $10, stop 2 price points away: a position of 5 units.
Account $1,000, risk 1% = $10. You buy ETH at 2,500 with a stop at 2,450, a $50 distance. Position size: 10 / 50 = 0.2 ETH, about $500. If the stop is hit, you lose $10, not more.
The main mistake is picking the size first ("all in" or "$500") and then placing the stop wherever it fits. The loss at the stop becomes random, and one trade can wipe out 10–20% of the account. Do it the other way round: amount at risk, then a stop based on the chart, then size from the formula. Remember that fees and slippage make the real loss slightly bigger.
Questions and answers
What is position size in simple terms?
It is how much of an asset you buy or sell in a trade. The right size means that if your stop is hit, you lose exactly the amount you decided to risk beforehand.
How do you calculate position size?
Divide the money you are risking by the distance from entry to stop. Risk $20 with a stop $4 from entry: a position of 5 units.
What percentage of my account should I risk per trade?
Beginners are usually advised to risk 0.5–1%, and many traders never go above 2%. That way a losing streak does not destroy the account.
Related terms
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Updated: 2026-10-19