Position sizing
Also called: position size · trade sizing
Definition
Position sizing is deciding how much to put into a single trade so that, if your stop-loss is hit, you lose only a planned share of your account.
How position sizing works
Good position sizing starts with risk, not with how confident you feel. Many traders limit each trade to losing 1% or 2% of their account. You then work backwards: the distance between your entry and stop-loss tells you how large the position can be.
The basic formula is position size = amount you are willing to lose ÷ distance to stop-loss. A wide stop means a smaller position, and a tight stop allows a larger one. Leverage changes how much margin you need to open the position, but it does not change how much you lose when the stop is hit.
Sizing also protects you from a losing streak. If you risk 20% per trade, five losses in a row can wipe out most of your account. At 1% per trade, the same streak costs about 5% and you can keep trading. With leveraged products, also check that your liquidation price sits well beyond your stop-loss.
Example
Suppose your account holds 5,000 USDT and you risk 1%, which is 50 USDT. You want to buy ETH at 2,500 USDT with a stop-loss at 2,400, a 100 USDT distance. Position size = 50 ÷ 100 = 0.5 ETH, worth 1,250 USDT. If the stop triggers, you lose 0.5 × 100 = 50 USDT plus fees. Using 5x leverage, you would post only 250 USDT of margin, but the loss at the stop would still be 50 USDT.
Common mistakes
- Choosing position size by leverage or by feel instead of by the stop-loss distance.
- Forgetting to include fees and slippage in the planned loss.
- Increasing size after a few wins or losses, which turns a plan into a gamble.
Learn and practise
FAQ
How much should I risk per trade?
Many traders use 1% to 2% of their account per trade. The right number depends on your strategy and tolerance, but small fixed risk makes losing streaks survivable.
Does leverage increase my position size?
Leverage lets you open a bigger position with less margin. Your profit and loss still depend on the full position size, so size first and pick leverage second.