How to calculate position size for stocks?
Quick Answer
Position Size = (Account Size × Risk %) ÷ (Entry Price - Stop Loss Price).
Detailed Explanation
Position sizing for stocks follows a simple formula that ensures consistent risk per trade. First, determine your dollar risk (account size × risk percentage). Then divide by the per-share risk (distance from entry to stop loss). This calculation tells you exactly how many shares to buy while keeping your risk constant.
Key Points
- 1Step 1: Account risk = Account × Risk %
- 2Step 2: Per-share risk = Entry - Stop
- 3Step 3: Shares = Account risk ÷ Per-share risk
- 4Round down to stay within risk limits
- 5Adjust for commission costs if significant
Example
$100,000 account, 1% risk ($1,000). Entry $50, stop $47 ($3 risk). Position = $1,000 ÷ $3 = 333 shares.
Related Questions
How much should I risk per trade?
Professional traders typically risk 1-2% of their total account on any single trade.
How do I calculate position size?
Position size = (Account Risk %) × Account Balance ÷ (Entry Price - Stop Loss Price).
Where should I place my stop loss?
Place stop losses below key support levels, pattern lows, or recent swing lows - where the trade thesis would be invalidated.