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Trading discipline · 6 min read
How to calculate position size
To calculate position size, multiply your account by the percent you will risk, then divide by the distance between your entry and your stop. Round down; the result is the most shares you can buy while keeping a loss inside your rule.
The formula
Three numbers go in: how big your account is, what percent you are willing to lose if you are wrong, and where you are wrong (your stop). Everything else follows.
Step by step
- Pick your risk %. This is a personal rule, often between 0.5% and 2%. Write it down once; don’t choose it trade by trade.
- Find your risk budget. Account × risk %. On a $10,000 account at 1%, the budget is $100.
- Place the stop first. Put it where the trade idea is wrong, not where the size looks nice.
- Measure risk per share. Entry − stop. Buying at $25.00 with a stop at $24.20 is $0.80 per share.
- Divide and round down. $100 ÷ $0.80 = 125 shares. The planned loss is $100.
Examples
Wider stop, smaller size. Same $100 budget, but the stop is $1.60 away: 62 shares. The risk stays the same; the position shrinks. That is the point.
CAD account, US stock. CA$20,000 at 1% is CA$200. At 1.37 CAD per USD, that is US$145.99. With $1.50 of risk per share, the size is 97 shares, not the 133 you would get by ignoring the exchange rate.
Options. You buy a call for $2.40 and will exit at $1.60. That is $0.80 × 100 = $80 of risk per contract. A $200 budget allows 2 contracts ($160 at risk), not 3.
Skip the arithmetic with the free position size calculator. It handles CAD/USD and options contracts.
The part the formula can’t do
Sizing only protects you if you take the stop. Gaps and fast markets can fill worse than planned, and the bigger risk is a person moving the stop “just this once”. That habit is what revenge trading is made of.
A quick way to see how often it happens: Rule Check asks you to guess how disciplined you were last week, then count.
Related lesson
A fixed-percent rule means your size shrinks after losses and grows after gains, automatically. It takes one decision out of your hands on exactly the days you are least likely to make it well. There are 1,000 short lessons like this in the Tradeonomist curriculum.
Questions
What is the formula for position size?
Position size = (account size × risk %) ÷ (entry price − stop price). For options, multiply the per-share premium difference by 100 per contract.
What is the 1% rule in trading?
It is a common personal rule: risk no more than 1% of the account on any one trade. It limits the loss per trade, not the size of the position. Educational only, not financial advice.
Should I round position size up or down?
Down. Rounding up means the planned loss is slightly bigger than your rule allows.
How do I size a US stock in a Canadian-dollar account?
Convert your risk budget from CAD to USD at the rate you would actually get, then divide by the risk per share in USD.
Educational only, not financial advice. Trading involves risk, including the loss of your capital.
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