# Position Sizing > Position sizing decides how many shares or contracts to trade so each loss stays small. Learn the formula, worked examples for each market and common mistakes. Source: https://learn.tradelabsai.com/risk/position-sizing/ Track: Risk Management · Level: Beginner · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Position Sizing", https://learn.tradelabsai.com/risk/position-sizing/ Position sizing is deciding how much to buy or sell on a trade. It is the single most important risk decision you make, more important than which stock you pick or exactly where you enter. The goal is simple: if the trade hits your stop, you lose only a small, planned amount of your account. Get this right and no single trade, and no normal losing streak, can do serious damage. ## The core formula ``` Position size = Amount you are willing to risk ÷ Risk per unit Risk per unit = |Entry price − Stop price| ``` The amount you are willing to risk is usually a fixed percentage of your account, such as 1%. See [Fixed Percentage vs Fixed Dollar Risk](https://learn.tradelabsai.com/risk/fixed-percentage-risk/). **Example: Sizing a stock trade** Account: $20,000. Risk per trade: 1% = $200. You plan to buy at $50.00 with a stop at $47.50. Risk per share = $2.50. Position size = $200 ÷ $2.50 = 80 shares (a $4,000 position). If the stop is hit, you lose about $200 plus costs. If the stop were $49.00 instead, you could buy 200 shares and still only risk $200. The position's dollar value changes with the stop distance; the risk does not. That is the whole idea. ## Sizing in other markets ### Forex Risk per unit is measured in pips and pip value. **Example: Sizing a forex trade** Account $10,000, risk 1% = $100. Stop 40 pips on EUR/USD, where one mini lot is $1 per pip. $100 ÷ 40 pips = $2.50 per pip = 2.5 mini lots (25,000 units). See [Pips and Pipettes](https://learn.tradelabsai.com/forex/pips-and-pipettes/) and [Pip Value Calculator](https://learn.tradelabsai.com/tools/pip-value-calculator/). ### Futures Risk per contract = stop distance in ticks × tick value. If the risk per contract exceeds your allowed risk, the trade is too large even at one contract; use a micro contract or skip it. See [Tick Size and Tick Value](https://learn.tradelabsai.com/futures/tick-size-and-tick-value/). ### Options For bought options, the maximum loss is the premium, so size by premium at risk: a $300 maximum risk allows one contract costing $3.00, not ten. See [Options Trading](https://learn.tradelabsai.com/markets/options-trading/). ## How much should you risk per trade? | Risk per trade | Typical use | |---|---| | 0.25% to 0.5% | Beginners, high frequency strategies, large accounts | | 1% | A common default for many traders | | 2% | Upper limit for many professionals | | 5% or more | Very aggressive; drawdowns become severe quickly | With 1% risk, ten losses in a row cost about 10% of the account. With 5% risk, the same streak costs about 40%. See [Losing and Winning Streaks](https://learn.tradelabsai.com/risk/losing-and-winning-streaks/) and [Risk of Ruin](https://learn.tradelabsai.com/risk/risk-of-ruin/). ## Adjusting for volatility Volatile assets need wider stops, which means smaller positions for the same risk. Many traders base stop distances on ATR, which automatically adjusts size to volatility. See [Volatility and ATR-Based Sizing](https://learn.tradelabsai.com/risk/volatility-and-atr-based-sizing/). ## Total risk across positions Sizing each trade correctly is not enough if you hold many correlated positions. Five positions each risking 1% in highly correlated stocks can behave like one 5% bet. Track total open risk, often called portfolio heat. See [Portfolio Heat](https://learn.tradelabsai.com/risk/portfolio-heat/) and [Correlation-Adjusted Sizing](https://learn.tradelabsai.com/risk/correlation-adjusted-sizing/). ## Common mistakes - **Sizing by feel or confidence** instead of by the stop. - **Using the same number of shares for every trade** regardless of stop distance. - **Tightening the stop to buy more shares,** which only increases the chance of being stopped out. - **Forgetting costs and slippage,** which make real losses slightly larger than planned. - **Increasing size after losses** to win money back. ## Frequently asked questions ### How do I calculate position size? Divide the amount you are willing to lose on the trade by the distance between your entry and stop, in price or pips multiplied by pip value. ### What percentage should I risk per trade? Many traders risk 0.5% to 2% of their account per trade, with 1% a common default. ### Does position sizing matter more than entries? For long term survival, yes. Good entries with poor sizing can still destroy an account; average entries with disciplined sizing let you keep trading and improving. Next, learn the most common sizing rule in detail: [Fixed Percentage vs Fixed Dollar Risk](https://learn.tradelabsai.com/risk/fixed-percentage-risk/). ## Continue learning - Next lesson: [Fixed Percentage vs Fixed Dollar Risk](https://learn.tradelabsai.com/risk/fixed-percentage-risk/) - Related: [Stop Loss Strategies](https://learn.tradelabsai.com/risk/stop-loss-strategies/): A good stop sits where your trade idea is proven wrong. Compare structure, volatility, percentage and time stops, with examples and the mistakes to avoid. - Related: [Fixed Percentage vs Fixed Dollar Risk](https://learn.tradelabsai.com/risk/fixed-percentage-risk/): Fixed percentage risk sizes trades as a share of your current account; fixed dollar risk uses one amount. Compare drawdowns, growth and when to use each. - Related: [Volatility and ATR-Based Sizing](https://learn.tradelabsai.com/risk/volatility-and-atr-based-sizing/): Volatility sizing adjusts position size so each trade carries similar risk whatever the market's swings. Learn ATR sizing, volatility targeting and worked examples. - Related: [Risk/Reward Ratio](https://learn.tradelabsai.com/risk/risk-reward-ratio/): The risk/reward ratio compares a trade's potential loss with its potential gain. Learn the formula, how it links to win rate, break even maths and common traps. - Related: [Risk of Ruin](https://learn.tradelabsai.com/risk/risk-of-ruin/): Risk of ruin is the chance that losses drain your account beyond recovery. Learn what drives it, see simulated numbers and how to keep it low. - Related: [Kelly Criterion](https://learn.tradelabsai.com/risk/kelly-criterion/): The Kelly criterion finds the bet size that maximises long term growth given your edge. Learn the formula, worked examples and why most traders use less. - Related: [Position Size Calculator](https://learn.tradelabsai.com/tools/position-size-calculator/): Free position size calculator. Enter your account size, risk percentage, entry and stop to see how many shares, contracts or coins to trade.