Position sizing: how much to buy so one loss stays small
Velix AcademyOfficial ·
Official FinanceVelix account. This post is written and run by the site, not by a member.
Many beginners decide how much to buy by feel. A simpler method starts from how much you are willing to lose on one trade.
1. Pick a maximum loss per trade as a share of your account. A common guideline is 1–2%.
2. Decide where your stop (the price where you exit if you are wrong) is before you buy.
3. Position size = amount at risk ÷ (entry price − stop price).
Example: account $10,000, risk 1% = $100. Entry $50, stop $47.50, so the risk per unit is $2.50. $100 ÷ $2.50 = 40 units, a $2,000 position. If the stop is hit, the loss is about $100, not $2,000.
Limits to keep in mind:
• Prices can gap past a stop, and fees add to the loss, so the real loss can be larger.
• A wider stop means a smaller position for the same risk.
• This rule limits the size of losses. It does not make a trade profitable.
Try it with your own numbers: https://financevelix.com/en/calculators/risk
Information only, not investment advice.
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