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Position Sizing and the 1% Rule, With Worked Examples

How to turn a risk limit into an exact position size, with step-by-step examples for stocks and crypto.

Key takeaways
  • Decide what you can lose first, then let the stop-loss set your size.
  • Position size = (account x risk %) / (entry – stop).
  • Risking about 1% per trade keeps losing streaks survivable.

Most traders decide how much to buy by feel. Professionals do it the other way round: they decide how much they are willing to lose, and let the stop-loss determine the size. This guide shows the method, and why so many traders cap that risk at around 1% of the account.

The core idea

Position size is not about how much you want to own. It is about how much you will lose if you are wrong. Two inputs set that amount: your risk limit, and the distance between your entry and your stop.

The formula

Position size=(Account size x Risk %)/(Entry price – Stop price)

For a short trade, use the absolute distance between entry and stop. The result is in units of the instrument: shares, coins or contracts.

Example 1: a stock

$10,000
Account size
1% = $100
Risk per trade
$100 to $95
Entry to stop ($5)
20 shares
Position size

Position size = $100 / $5 = 20 shares, a position worth $2,000. If the stop is hit, you lose about $100, or 1% of the account. Buy 50 shares because the number feels right, and the same stop costs $250.

Same stop, different loss

$07515022530010020 shares (sized)25050 shares (by feel)

Same entry, same stop: the loss scales with position size. Values in dollars.

Example 2: a crypto trade

Account $10,000, risk 1% ($100), entry $64,200, stop-loss $61,800. The distance is $2,400, so position size = $100 / $2,400 = about 0.042 BTC, worth roughly $2,675. The position is far smaller than the account. Position value and risk are different numbers, and only risk should be fixed.

Entry, stop and target

Take profit$68,400Entry$64,200Stop-loss$61,800Reward $4,2001.75 RRisk $2,4001 R, sized to $100

Illustrative trade. The position is sized so that reaching the stop costs about $100, while the target pays about $175.

Why 1%?

The figure is a convention, not a law. It is popular because it keeps losing streaks survivable. Ten consecutive losses at 1% risk leave an account down about 9.6%. At 5% risk per trade, the same streak costs about 40%, and recovering that takes a 67% gain. Many traders use between 0.5% and 2%, depending on their strategy and experience.

Risk per trade vs. damage from a streak

0%20%40%60%80%9.6%1%18.3%2%40.1%5%65.1%10%

Drawdown after ten consecutive losing trades, by risk per trade.

Fees and slippage

Real losses are usually larger than the plan. Exchange fees, spreads and slippage add to the distance between entry and exit. Including a round-trip fee estimate gives a more honest size. In fast markets or overnight gaps, a stop may fill beyond its price, so treat your risk limit as a target, not a guarantee.

Leverage does not change the risk

Leverage lets you hold a larger position with less capital, but the formula is unchanged: risk is the size multiplied by the stop distance. What leverage changes is the margin you lock up and how close you are to liquidation. If a leveraged position can be liquidated before your stop is reached, the stop is not protecting you.

A short checklist

  1. Choose your risk per trade as a percentage of the account.
  2. Place the stop where the trade idea is clearly invalidated.
  3. Calculate the size from the distance. Do not choose the size first.
  4. Check that the position and margin fit within your account.
  5. Record the trade so you can review your results.

Run the numbers on your own tradeThe free position size calculator does this arithmetic for you, including fees and leverage.

Open the calculator

This article is for education only. It is not financial advice or a recommendation to buy or sell any asset. Trading involves a high risk of loss.