What position sizing answers
Not “how much do I want to buy” but “how much can I buy so that being wrong costs a known, survivable amount”. Fix the loss you are willing to take on a trade, decide where the idea is proven wrong and place your stop there, and the share count falls out of those two numbers. This tool does that arithmetic, and adds the reward-to-risk ratio if you supply a target price.
The formulas
amount at risk = account size × risk % per traderisk per share = |entry price − stop-loss price|shares to buy = amount at risk ÷ risk per shareThe share count is rounded down, because rounding up would put more than your stated limit at risk.
Worked example
| Input | Value |
|---|---|
| Account size | $25,000 |
| Risk per trade | 1% |
| Amount at risk | $250 |
| Entry price | $50.00 |
| Stop-loss | $47.50 |
| Risk per share | $2.50 |
| Shares to buy | 100 |
| Position value | $5,000 (20% of the account) |
Note the two separate percentages. You are risking 1% of the account, but committing 20% of it to the position. People confuse these constantly — the position is large, the potential loss is small, and that is the entire point of sizing from the stop.
The stop distance drives everything
| Stop | Risk per share | Shares | Position value |
|---|---|---|---|
| $49.00 | $1.00 | 250 | $12,500 |
| $47.50 | $2.50 | 100 | $5,000 |
| $45.00 | $5.00 | 50 | $2,500 |
| $40.00 | $10.00 | 25 | $1,250 |
A tight stop permits a large position; a wide stop forces a small one. The loss is $250 in every row. This is why the stop should be placed where the trade idea is invalidated — never tightened just to justify buying more.
Rules of thumb
- 1–2% per trade is the conventional range. At 2%, ten consecutive losses cost about 18% of the account; at 10% they would cost 65%.
- Recovery is asymmetric. A 50% loss needs a 100% gain to get back to even. Keeping losses small is worth more than picking well.
- Reward-to-risk of at least 2:1 means you can be right less than half the time and still come out ahead.
- Gaps ignore stops. A stop is an order, not a guarantee — an overnight gap can fill well below it, so treat the risk figure as a normal case, not a worst case.
- Correlated positions stack. Five trades in the same sector at 1% each is closer to one 5% bet than to five independent ones.
Frequently asked questions
The tool says my position costs more than my account. Why?
Does it work for a short position?
Should commissions be included?
What risk percentage should I use?
Why is the share count rounded down?
Is any of this sent anywhere?
Note
This is a risk-arithmetic tool, not investment advice and not a recommendation to trade. Position sizing limits the size of a loss; it does not prevent one.