How to Calculate Position Size
Learn the exact formula for calculating how many shares to buy based on your risk tolerance. Protect your capital with proper position sizing.
Determine Your Account Risk Percentage
Decide what percentage of your total account you're willing to risk on a single trade. The standard rule is 1-2% per trade. For a $10,000 account at 1% risk, your maximum dollar risk is $100 per trade.
Pro Tip: Start with 1% risk when learning. You can increase to 2% once consistently profitable.
Calculate Your Dollar Risk
Multiply your account size by your risk percentage. Formula: Dollar Risk = Account Size × Risk Percentage. Example: $25,000 × 2% = $500 maximum risk per trade.
Pro Tip: Keep this number consistent across all trades regardless of how 'confident' you feel.
Determine Your Per-Share Risk
Calculate the difference between your entry price and stop loss price. This is your per-share risk. Example: Entry at $50, stop at $47 means per-share risk = $3.
Pro Tip: Always set your stop loss based on technical levels, not arbitrary percentages.
Calculate Position Size
Divide your dollar risk by your per-share risk. Formula: Position Size = Dollar Risk ÷ Per-Share Risk. Example: $500 ÷ $3 = 166 shares. Always round down to stay within your risk limit.
Pro Tip: Use our position sizing calculator to do this math automatically.
Common Mistakes to Avoid
- ✗Risking too much on 'sure thing' trades
- ✗Using arbitrary stop losses instead of technical levels
- ✗Forgetting to account for slippage on volatile stocks
- ✗Increasing position size after losing trades
- ✗Not adjusting for different asset volatilities