Most accounts don't die from bad entries, they die from positions that were too big for the stop loss behind them. This guide gives you the exact formula professionals use, with worked examples you can copy on your next trade.
Ask a beginner what makes a good trade and they'll talk about the entry. Ask a professional and they'll talk about the size. The reason is simple arithmetic: a trader with mediocre entries and disciplined sizing survives long enough for their edge to play out. A trader with great entries and random sizing eventually puts too much on one idea, and that one idea is all it takes.
Losing trades are not a malfunction, they are a guaranteed, recurring cost of trading. Even strong strategies lose 40–50% of the time. Position sizing is how you decide, before the trade, exactly what each of those inevitable losses will cost you. Get this right and a losing streak is an annoyance. Get it wrong and a losing streak is the end of the account.
There is also a second-order effect that's easy to underestimate: drawdowns are asymmetric. Lose 10% and you need roughly 11% to get back to even. Lose 50% and you need 100%. Small, fixed risk per trade keeps you on the shallow end of that curve, where recovery is always realistic.
Position sizing answers one question: how big can this position be so that, if my stop loss is hit, I lose only the amount I planned to lose?
Position size = (Account balance × Risk %) ÷ Stop distance %
Three inputs, one output. Your account balance and risk percentage are decisions you make once. The stop distance, how far your stop loss sits from your entry, in percent, changes with every setup. That's the variable the formula adapts to.
Account: $5,000. Risk per trade: 1%, so $50. Your entry is $100,000 on BTC and your stop is at $98,000, a 2% stop distance.
Position size = ($5,000 × 0.01) ÷ 0.02 = $2,500 of exposure. If the stop is hit, you lose 2% of $2,500 = $50. Exactly what you planned.
Same account, same 1% risk, but this time it's a swing setup on an altcoin and the stop needs to sit 5% below entry to clear the noise.
Position size = $50 ÷ 0.05 = $1,000 of exposure. The position is less than half the size of Example 1, yet the dollar risk is identical: $50. The wider stop didn't make the trade more dangerous, the formula shrank the position to compensate.
Account: $20,000. Risk per trade: 0.5%, so $100. Stop distance: 4%.
Position size = $100 ÷ 0.04 = $2,500 of exposure. Notice that the position is the same notional size as Example 1, even though the account is four times larger, because the trader chose a more conservative risk percentage and the stop is wider. Size is an output, never a starting point.
Here's the same $5,000 account risking 1% ($50) per trade, across four different stop distances. The risk never changes, only the size does.
| Stop distance | Dollars at risk | Position size (notional) | Margin at 5x leverage |
|---|---|---|---|
| 1% | $50 | $5,000 | $1,000 |
| 2% | $50 | $2,500 | $500 |
| 5% | $50 | $1,000 | $200 |
| 10% | $50 | $500 | $100 |
Read that table again, because it contains the whole lesson: a tight 1% stop justifies a position as large as the entire account (on margin), while a 10% stop justifies only $500. Traders who use the same size for every trade are unknowingly risking ten times more on wide-stop setups than on tight ones.
There are two sane ways to define "risk per trade":
Either beats improvising. If in doubt, start fixed-fractional at 1% and don't increase it until you have months of consistent results. Our risk management guide covers how risk per trade fits into the bigger rulebook.
This is the part most beginners have backwards. Leverage does not determine your risk, position size determines your risk. Leverage only determines how much of your own capital (margin) you must lock up to hold that position.
Take Example 1: a $2,500 position with a 2% stop risks $50, full stop. At 1x leverage you post $2,500 of margin. At 5x you post $500. At 10x you post $250. In all three cases, if the stop is hit, you lose the same $50, because the exposure is the same $2,500. Higher leverage just means less capital tied up (and a closer liquidation price, which is why your stop must always sit inside it, see our guide on liquidation).
Maxing out whatever the exchange allows ("it lets me do 50x, so I'll use 50x") inverts the entire process. The exchange's leverage cap is a product setting, not a recommendation.
Putting the same notional on a scalp with a 1% stop and a swing with an 8% stop means your real risk varies by a factor of eight between trades, invisibly. Recalculate for every trade. It takes seconds once the formula is habit.
Doubling size to "win it back" is the classic martingale trap: each step makes the next loss twice as damaging, exactly when your judgment is most compromised. If anything, professionals do the opposite, they cut size during losing streaks and let fixed-fractional sizing rebuild it as the account recovers.
The formula only protects you if you run it before every trade, including the "obvious" ones. Decide your risk percentage once, keep the formula within reach, and make size the first thing you compute after spotting a setup, not the last thing you guess before clicking buy.
