Position sizing answers the question every trade begins with: how many shares (or units, or contracts) should I buy? The professional method works backwards from risk. You decide how much of your account a single losing trade is allowed to cost — typically 1–2% — and let the distance to your stop-loss determine the position size:
Worked example: with a $10,000 account risking 1% per trade, your risk budget is $100. If you buy at $50.00 with a stop at $48.50, the risk per share is $1.50, so the position is $100 ÷ $1.50 = 66 shares — a position worth $3,300. If the stop is hit you lose $99, almost exactly the 1% you budgeted, no matter how volatile the stock is.
This is the discipline that separates surviving traders from blown-up accounts: the dollar loss on any single trade is decided before entry, and the share count is just arithmetic. A tighter stop allows a larger position at the same risk; a wider stop forces a smaller one. Risk stays constant — size floats.
If your strategy has a proven edge, the Kelly Criterion calculator estimates the growth-optimal risk percentage from your win rate and payoff ratio — and the answer, halved for safety, is often close to the 1–2% rule anyway. To know whether your edge is real in the first place, run your trade history through the win rate calculator, or stress-test the strategy across hundreds of simulated trades with the Monte Carlo probability simulator.
The formula is instrument-agnostic. For stocks, the result is shares; for crypto, coins or fractions of a coin; for forex, units of the base currency (divide by your lot size to get lots). The only requirement is that the entry and stop are in the same currency as your account. For short positions, enter a stop above your entry price — the calculator uses the absolute stop distance either way.
The widely used professional standard is 1–2% per trade, and 1% or less while a strategy is unproven. At 1% risk it takes over 100 consecutive losses to wipe out an account, while at 10% risk a very ordinary streak of seven losses costs more than half the account. Risking small is what keeps a losing streak survivable.
Position size = (account size × risk percentage) ÷ (entry price − stop-loss price). The numerator is your dollar risk budget; the denominator is the loss per share if the stop is hit. The result is the number of shares or units that makes the total loss equal your budget exactly.
Because risk is only the distance between entry and stop, not the whole position. Buying 66 shares at $50 is a $3,300 position, but with a stop at $48.50 only $99 is actually at risk. Position value determines capital tied up and exposure to overnight gaps; risk determines what a normal stop-out costs.
Yes. For a short trade, your stop-loss sits above the entry price. The calculator uses the absolute distance between entry and stop, so the share count and dollar risk are computed identically for long and short trades.
That happens with very tight stops, and it means you'd need leverage or margin to take the full size. The calculator flags this case. Options are to use the leverage (with its own risks), cap the position at your buying power and accept risking less than budgeted, or simply skip setups whose stops are tighter than your instrument realistically respects.