Position sizing is arguably the most important skill in trading. Get it right, and you can survive a string of losses. Get it wrong, and one bad trade can wipe you out. Most traders focus on entry and exit. Professionals focus on size.

The difference between a 1% risk and a 5% risk per trade is the difference between surviving and blowing up. This guide covers everything you need to know about position sizing — from the basic formula to advanced considerations.

The core formula

That's it. Everything else is detail. This formula ensures that if your stop loss hits, you lose exactly the percentage of your account you're willing to risk. No more, no less.

Understanding each component

Account Size

Your total trading capital. Not your net worth — just what you've allocated to trade. Be honest here. If you have $50,000 in savings but only $5,000 is for trading, use $5,000.

Common mistake: Using total account value instead of trading capital. This leads to over-sizing positions and taking more risk than intended.

Risk Percentage

The percentage you're willing to lose on this trade. This should be consistent across all trades, regardless of how confident you feel.

• Conservative (1%): Used by most professional traders. Allows you to survive long losing streaks.
• Moderate (2%): Balanced approach. Still allows for recovery after losses.
• Aggressive (3%): Higher risk, higher reward. Requires strong risk management.
• Gambling (5%+): Not recommended. One bad streak can wipe you out.

Key principle: Your risk % should be consistent. If you're more confident, adjust your stop distance or position size, not your risk percentage.

Stop Distance

How far your stop loss is from your entry, in percentage terms. If you enter at $100 and your stop is at $98, your stop distance is 2%.

Stop distance should be based on:

• Technical levels: Support/resistance, trend lines, chart patterns
• Volatility: More volatile assets need wider stops
• Timeframe: Longer timeframes can handle wider stops

Important: Add a buffer for slippage (0.1-0.5%) and fees. Your stop might not execute exactly where you set it.

Step-by-step examples

Example 1: Spot trading

Example 2: With leverage

Example 3: Different risk percentages

Same $10,000 account, same 2% stop distance, but different risk percentages:

• 1% risk: $5,000 position
• 2% risk: $10,000 position
• 3% risk: $15,000 position (requires leverage)

Notice how a small change in risk % dramatically changes position size. This is why consistency matters.

Example 4: Volatile altcoin with wide stop

Example 5: Multiple correlated positions

Advanced considerations

Account for fees

Trading fees reduce your effective position size. If fees are 0.1% on entry and exit, that's 0.2% total. Adjust your stop distance accordingly:

Adjusted Stop Distance = Stop Distance + Total Fee %

If your stop is 2% away and fees are 0.2%, use 2.2% in your calculation.

Account for slippage

Your stop might not execute exactly where you set it, especially in volatile markets or low liquidity. Add a buffer:

• High liquidity (major pairs): 0.1-0.2% buffer
• Medium liquidity: 0.3-0.5% buffer
• Low liquidity: 0.5-1% buffer

Correlation and portfolio risk

If you have multiple positions, consider correlation. Holding 3 BTC positions and 3 ETH positions might seem like 6 separate 1% risks, but if BTC and ETH are highly correlated, your actual risk is higher.

Solution: Reduce position size when holding correlated assets, or use our Capital at Risk Calculator to see total exposure.

Volatility-based sizing

More volatile assets should have smaller positions (or wider stops). If Asset A moves 5% per day and Asset B moves 1% per day, a 2% stop on Asset A is much riskier than a 2% stop on Asset B.

Consider using ATR (Average True Range) to adjust position size based on volatility.

Common mistakes

Mistake 1: Using total account value

Mistake 2: Not accounting for slippage

Your stop might not execute exactly where you set it. Add a small buffer (0.1-0.5%) to your stop distance, especially for volatile or low-liquidity assets.

Mistake 3: Changing risk % based on confidence

Your risk % should be consistent. If you're more confident, adjust your stop distance or position size, not your risk percentage. Consistency is key to long-term survival.

Mistake 4: Ignoring fees

Trading fees reduce your effective position size. If fees are 0.1%, account for that in your calculations. On a $5,000 position, 0.1% fees cost $5 — that's 5% of your $100 risk.

Mistake 5: Not considering correlation

Holding multiple correlated positions increases your actual risk. If you have 5 positions that all move together, you're not taking 5 separate 1% risks — you're taking one 5% risk.

Mistake 6: Sizing based on expected profit

Position size should be based on risk, not expected profit. A trade with 10:1 reward-to-risk doesn't mean you should take a 10x larger position. Your risk % stays the same.

Why position sizing matters

If you risk 1% per trade and have a 50% win rate, you can lose 20 trades in a row and still have 82% of your account. If you risk 5% per trade, 20 losses in a row wipes you out.

Survival math: After 10 losses at 1% risk, you have 90.4% of your account. After 10 losses at 5% risk, you have 59.9% of your account. After 20 losses at 5% risk, you have 35.8% of your account.

Position sizing is what separates traders who last from traders who blow up. It's not about being right — it's about surviving when you're wrong.

Position sizing with leverage

Leverage changes the capital required, not the risk. Here's how it works:

• Without leverage: $5,000 position requires $5,000 capital
• With 5x leverage: $5,000 position requires $1,000 margin
• Risk is the same: 2% move = $100 loss in both cases

Important: With leverage, you also need to account for liquidation risk. Your stop should be well above your liquidation price. Use our Liquidation Distance Tool to calculate this.

Best practices

Key takeaways

Frequently asked questions

Should I risk the same percentage on every trade?

Yes. Consistency is key. Your risk % should be the same regardless of how confident you feel. If you're more confident, adjust your stop distance or position size, not your risk percentage.

What if my stop is very tight (0.5%)?

Tight stops mean larger positions for the same risk. A 0.5% stop with 1% risk means a $20,000 position on a $10,000 account. Make sure your stop is realistic and accounts for volatility and slippage.

How do I size positions for different timeframes?

Longer timeframes can handle wider stops, which means smaller positions for the same risk. A 5% stop on a daily chart might be appropriate, while a 5% stop on a 1-minute chart would be excessive.

Should I adjust position size as my account grows?

Yes. As your account grows, your position sizes should grow proportionally. If you start with $10,000 and risk 1% ($100), and your account grows to $20,000, you should still risk 1% ($200), which means larger positions.

What if I'm trading multiple correlated assets?

Reduce position size when holding correlated positions. If you have 3 BTC positions and 3 ETH positions, and BTC/ETH are 80% correlated, your actual risk is higher than 6 separate 1% risks. Consider reducing each position to 0.7-0.8% to account for correlation.

How do fees affect position sizing?

Fees reduce your effective position size. If fees are 0.1% on entry and exit (0.2% total), add that to your stop distance. A 2% stop becomes 2.2% in your calculation.

Can I use different risk percentages for different strategies?

Some traders use different risk % for different strategies (e.g., 1% for swing trades, 0.5% for scalping). This is acceptable as long as you're consistent within each strategy type.

What's the minimum account size for proper position sizing?

There's no hard minimum, but very small accounts face challenges. If you have $100 and risk 1% ($1), fees and slippage can eat into your risk. Consider starting with at least $1,000-2,000 for meaningful position sizing.

Tools to help

Use our Position Size Calculator to run these calculations instantly. Our Risk of Ruin Estimator shows how your risk per trade affects your survival probability, and our Capital at Risk Calculator helps you see total exposure across multiple positions.