Position sizing: how much to risk per trade
Position sizing decides how much you lose when a trade hits its stop-loss. How fixed-percentage risk works, how to calculate a position size, and why it decides how long you survive a losing streak.
Position sizing answers one question: how big should this position be so that, if my stop-loss is hit, I lose the amount I decided in advance? It is the part of trading you control completely, and it has more influence on your survival than any entry.
Risk per trade as a percentage
A common approach is to risk a fixed percentage of your account on every trade. If that percentage is 1% and your account is 5,000, every stop-out costs about 50. If your account grows or shrinks, the amount moves with it.
The idea behind it: a loss is always a known, small share of your account, no matter how sure you feel about a trade. Small percentages such as 0.5–2% are often mentioned in trading education; what fits you depends on your situation, and it is your own decision.
How to calculate a position size
- Amount at risk = account × risk % ÷ 100.
- Distance to stop = |entry − stop-loss|.
- Position size = amount at risk ÷ distance to stop.
Example: account 5,000, risk 1%, entry 100, stop-loss 98. Amount at risk = 50. Distance = 2. Position size = 25 units, a position worth 2,500.
Notice what happens: the stop-loss decides the size, not the other way round. A wider stop means a smaller position; a tighter stop allows a larger one. The risk in money stays the same. Luxabit's position size calculator does this sum for you.
Why it matters so much: losing streaks
Every approach has losing streaks. What a streak does to your account depends on your risk per trade:
| Risk per trade | Account left after 10 losses in a row |
|---|---|
| 1% | about 90% |
| 2% | about 82% |
| 5% | about 60% |
| 10% | about 35% |
And the deeper the drawdown, the harder the way back: after losing 50%, you need +100% to recover.
Common mistakes
- Sizing by feel: a bigger position because "this one is certain". Conviction does not change the odds; it only changes how much you lose if you are wrong.
- Moving the stop to fit a size: choosing the size first and then squeezing the stop-loss to make it fit. The stop belongs where your idea is proven wrong.
- Forgetting leverage: leverage changes how much margin you need, not how much you lose at your stop. A position sized on risk loses the same amount with or without leverage, as long as the stop fills.
- Ignoring costs and slippage: fees and a stop that fills at a worse price can make a loss bigger than planned.
Making it a rule
Write your maximum risk per trade into your trading plan. Luxabit's pre-trade check compares the risk you state for each idea with that maximum, and the journal tags an oversized position so it shows up in your Discipline Score.