Risk per trade and position size: the basics

Position sizing decides how much a single loss can hurt. The method is the same for any instrument: decide the money you are willing to lose on the trade, then work backwards to the size.

The formula

position size = money at risk / risk per unit

For stocks, risk per unit is the distance between your entry and your stop, per share.

Example. You are willing to risk $100. You plan to buy at $50.00 with a stop at $48.50. The risk is $1.50 per share, so the size is $100 / $1.50 = 66 shares (rounded down).

For options, risk per contract is the amount you expect to lose if your exit is hit, times 100.

Example. You buy a call at $2.00 and plan to exit if it falls to $1.20. The risk is $0.80 x 100 = $80 per contract, so a $100 risk budget allows 1 contract. Note that an option can lose its full premium quickly, so stops may not fill where you expect.

How much to risk

Many traders use a small fixed percentage of their account per trade; 1% is a commonly cited figure, and some use less. It is a guideline, not a rule, and the right number depends on your account, strategy and tolerance for losing streaks. The useful point is the principle: a series of losses should not threaten your account.

Track it in your journal

1. Record the risk amount for each trade. OptiqJournal has a Risk amount field in every trade.
2. Read your R-multiples. Once risk is set, the profit or loss is shown as a multiple of it: +2R means you made twice what you risked, -1R means you lost exactly your plan.
3. Check consistency. If your largest loss was five times your planned risk, the problem is the stop, not the setup.
4. Watch for size creep. Position size well above normal, especially after a loss, is a warning sign. The Coach tab flags trades larger than 2.5 times your median position value.

Common mistakes

• Sizing by conviction instead of by risk.
• Moving the stop after entry, which changes the risk you sized for.
• Ignoring fees on small positions.

See also win rate vs risk-reward. Try the journal free.

Educational example only. Not investment advice, and all trading involves risk of loss.