Position Sizing 101: How Much Should You Risk Per Trade?

One of the most common mistakes beginners make is trading random position sizes. They risk too much on one trade, then too little on the next — and their results become inconsistent. The solution is simple: **position sizing** based on risk percentage and stop loss distance.

Position sizing balances risk and capital — not every trade should be equal in size.

The Golden Rule: Risk Small

Professional traders rarely risk more than 1–2% of their total account on any single trade. This small percentage ensures that even a series of losing trades doesn’t destroy their account or confidence.

• ✅ Risk 1–2% of total account per trade.
• ❌ Never risk more than you can afford to lose.
• 💡 Small risk = big survival = long-term success.

Small percentage risk highlighted — key to professional trading discipline.

The Simple Formula

Here’s the core position sizing formula used by professionals around the world:

Position Size = (Account × Risk %) ÷ Stop Loss Distance

This formula ensures that your potential loss (if your stop hits) equals the exact risk percentage you planned for. No surprises. No emotions.

Position sizing formula illustrated with icons and calculator.

Example: The 1% Risk Rule

Let’s say you have a $10,000 account and want to risk 1% per trade. That’s $100 of risk. If your stop loss is $2 away from your entry price, here’s the calculation:

• Account: $10,000
• Risk: 1% = $100
• Stop Loss Distance: $2
• Position Size = $100 ÷ $2 = 50 shares

Example: With a $10,000 account and a $2 stop, you buy 50 shares to risk only 1%.

Why Position Sizing Matters

Position sizing does more than control losses — it keeps you consistent. When every trade risks the same percentage, your performance becomes a true reflection of your strategy, not your emotions.

• ✔️ Keeps losses small and manageable.
• ✔️ Protects capital from large drawdowns.
• ✔️ Builds consistency over time.

Proper risk sizing protects capital and allows steady equity growth.

Conclusion

Position sizing is the bridge between analysis and execution. You can’t control the market, but you can control how much you risk on every trade. Master this concept, and you’ll trade longer, smarter, and with more confidence.

Small risk = big survival = long-term profits.