Position Sizing: How Many Shares or Contracts Should You Trade?

Two traders take the same trade with the same entry and stop. One risks 1% of the account, the other 10%. After a string of losses, one is fine and the other is finished. Position sizing decides how much you can lose, and it matters at least as much as your entries.

The fixed-risk formula

The most common method is to risk a fixed share of your account on each trade:

Position size = (Account × Risk %) ÷ (Entry − Stop)

Where:

• Account is your current account value.
• Risk % is the share you are willing to lose if the stop is hit, often 0.5% to 1%. See the 1% rule.
• Entry − Stop is the distance to your stop, per share.

Worked example: stocks

• Account: $50,000
• Risk per trade: 1% = $500
• Entry: $40.00, stop: $38.50, so $1.50 risk per share

Size = $500 ÷ $1.50 = 333 shares.

If the stop is hit, you lose about $500, plus fees and any slippage. Notice that the size changes with the stop distance: a tighter stop allows more shares, a wider stop fewer. The dollar risk stays the same.

Futures

For futures, use the value of a point or tick. For example, an E-mini S&P 500 contract is worth $50 per index point, and a Micro E-mini is $5 per point.

• Account: $50,000, risk 1% = $500
• Stop distance: 8 points
• Risk per E-mini contract: 8 × $50 = $400, so 1 contract
• Risk per Micro contract: 8 × $5 = $40, so 12 Micro contracts

Micro contracts make precise sizing much easier on smaller accounts. See micro futures.

Options

For long options, the maximum loss is usually the premium paid, so you can size by premium: with $500 of risk and an option costing $2.50 ($250 per contract with a 100 multiplier), you could buy 2 contracts. For spreads, use the maximum loss of the spread. The risk profile shows it at a glance.

Mistakes to avoid

• Sizing by feel or by a fixed number of shares. 100 shares of a $10 stock and 100 shares of a $500 stock are very different risks.
• Ignoring the stop. Without a stop, you cannot size.
• Forgetting gaps. A stop does not guarantee your exit price. Overnight gaps can go past it. Size overnight and earnings trades smaller.
• Ignoring correlation. Five long positions in the same sector are closer to one big position. See correlation risk.
• Increasing size after losses to win it back.

Use a calculator

Doing this arithmetic while price is moving leads to mistakes. Our free Position Calculator works out shares or contracts from your account, risk and stop. In TradeThink, every trade's R-multiple is calculated from your planned risk, so you can check whether your sizing is consistent.