How to calculate position size in trading

Position size comes from three numbers: how much of the account you will risk, where the stop goes, and the entry. Work out the money at risk, divide it by the loss per unit at the stop, and that is the size.

The formula: position size = (account × risk %) ÷ (distance from entry to stop, per unit). Everything else, crypto or stocks, futures or forex, is just finding the loss per unit in that market.

Three steps

Money at risk. Account balance × the percent you risk per trade. $10,000 at 1% is $100.
Loss per unit. The distance from entry to stop, in money, for one coin, one share, one contract or one lot.
Size. Money at risk ÷ loss per unit. Round down, never up, so the loss at the stop stays inside the amount you chose.

money at risk = balance × risk % size = money at risk ÷ |entry − stop| per unit

Crypto

$10,000 account, 1% risk, long BTC at 76,600 with the stop at 74,700. Money at risk: $100. Loss per coin: 1,900. Size: 100 ÷ 1,900 = 0.0526 BTC, a position worth about $4,032. Counting a 0.05% fee on the way in and out, the loss per coin is 1,975.65 and the size drops to about 0.0506 BTC, so that the loss at the stop, fees included, is still $100.

Leverage does not change any of this. It only changes how much margin the exchange holds against the position. What it can do is bring the liquidation price inside your stop; check that with the liquidation price calculator.

Stocks

$25,000 account, 0.5% risk, buy at $200 with the stop at $194. Money at risk: $125. Loss per share: $6. Size: 125 ÷ 6 = 20.8, rounded down to 20 shares, a $4,000 position risking $120.

Futures

A futures contract moves a fixed amount per point. The E-mini S&P 500 (ES) is $50 a point and the Micro (MES) is $5. $50,000 account at 1% is $500. A 10-point stop costs $500 per ES contract, so the size is 1 ES, or 10 MES. If the stop needs 12 points, one ES would risk $600, over the limit, so trade 8 MES ($480) instead.

Forex

On EUR/USD a standard lot is 100,000 units, and one pip (0.0001) is worth $10 per standard lot. $10,000 at 1% is $100. A 25-pip stop costs $250 per standard lot, so the size is 100 ÷ 250 = 0.4 lots. Pairs not quoted in dollars have a different pip value, which your broker shows.

Gold

Many brokers quote XAU/USD in lots of 100 ounces, so a $1 move is $100 per lot; check your broker's contract size, because it varies. $10,000 at 1% is $100. A $5 stop costs $500 per lot, so the size is 0.2 lots.

Common mistakes

Choosing the size first and the stop to fit. The stop goes where the idea is wrong; the size is what makes that affordable.
Forgetting fees. On short-term trades with tight stops, fees on both sides can be a real part of the loss.
Using the whole balance as margin. A position worth more than the account needs leverage, and that is fine, as long as the liquidation price is far beyond the stop.
Changing the risk after a loss. Keep the percent fixed. See how much to risk per trade.