What is Position sizing?

What does Position sizing mean in practice?

A common method risks a fixed percentage of equity per trade. Divide the money you are willing to lose by the distance to your stop, and the answer is the position size. A wider stop therefore means a smaller position, so each trade risks the same amount regardless of the setup.

Sizing usually matters more than entry logic. Two traders with the same entries and different sizing can have completely different outcomes. Costs matter here as well: when the stop is tight, fees and slippage are a large fraction of the risk and need to be included in the sum.

A worked example

Illustrative only: capital 1,00,000, risk 1% per trade is 1,000. A stop 20 points away gives a size of 50 units. A stop 40 points away gives 25 units, for the same 1,000 of risk.

How to read or test it

Fix your risk per trade as a percentage of equity and let the stop distance determine the size, then check what a long losing streak would do. If ten losses in a row is plausible for the strategy, work out the drawdown that produces at your chosen risk. Include fees in the calculation, and set a ceiling on total exposure so several simultaneous positions cannot add up to more than you intended.

How AKQX handles Position sizing

AKQX sizes positions with fees in mind, applies a maximum leverage cap, and a fee-to-risk breaker refuses trades where cost is large relative to the risk taken.

See Risk management tools for the feature page.

A common mistake

Sizing by feel or by how confident a setup looks, which scales risk with conviction instead of with the stop.

Related terms