What is Position Sizing in Trading?
Position sizing is one of the most critical aspects of risk management in trading. It determines how many shares, lots, or contracts you should buy or sell in a single trade based on your account size and risk tolerance.
Many traders focus heavily on entry and exit strategies but neglect position sizing—which is often the difference between consistent profits and blown accounts. Even with a 60% win rate, poor position sizing can lead to significant losses.
💡 The 2% Rule
Professional traders typically risk no more than 1-2% of their account on any single trade. This means if you have ₹1,00,000, you should risk a maximum of ₹2,000 per trade.
How to Calculate Position Size: The Formula
Position Size Formula:
Position Size = Risk Amount ÷ (Entry Price - Stop Loss)
Step-by-Step Example:
- Account Balance: ₹1,00,000
- Risk Per Trade: 2% = ₹2,000
- Entry Price: ₹25,000
- Stop Loss: ₹24,500
- Stop Loss Distance: ₹500
- Position Size: ₹2,000 ÷ ₹500 = 4 units
Position Sizing for Different Markets
📈 Stocks & ETFs
Calculate shares based on price difference between entry and stop loss.
💱 Forex
Calculate lot size based on pip value and account currency.
₿ Crypto & Futures
Same formula applies—risk amount divided by stop distance.
Common Position Sizing Mistakes to Avoid
Risking too much per trade
Even a few losing trades can wipe out your account if you risk 10-20% per trade.
Using the same position size for every trade
Position size should vary based on stop loss distance to maintain consistent risk.
Ignoring account drawdown
Reduce position size during losing streaks to protect capital.
Frequently Asked Questions
What is the best risk percentage for beginners?
Start with 1% risk per trade. This allows you to survive 100 consecutive losing trades before your account is depleted. As you gain experience and develop a proven strategy, you can gradually increase to 2%.
Does this calculator work for options trading?
Position sizing for options is more complex due to premium costs and Greeks. This calculator is best suited for spot trading, futures, and forex where the risk calculation is straightforward.
How do I factor in brokerage and slippage?
Add expected slippage (typically 0.1-0.5%) to your stop loss distance before calculating. For high brokerage costs, reduce your risk percentage slightly to account for transaction costs.