How position sizing works
The order is what matters. Beginners pick a position size and then place a stop wherever the chart suggests. Professionals place the stop where the trade would be proven wrong, then let that distance dictate the size.
stop distance = |entry − stop|
units to buy = risk amount ÷ stop distance
position size = units × entry price
The consequence is counterintuitive at first: a tight stop lets you take a larger position, and a wide stop forces a smaller one. The money you stand to lose stays identical either way, which is the entire point.
A worked example
A $10,000 account risking 1% per trade, entering at $42,000 with a stop at $39,900:
| Amount at risk | $100.00 |
|---|---|
| Stop distance | $2,100 (5.00%) |
| Units to buy | 0.047619 |
| Position size | $2,000.00 |
A $2,000 position on a $10,000 account sounds aggressive until you notice that being stopped out costs $100. Twenty losing trades in a row — a run most people never see — would take the account down 18%, not wipe it.
Picking a risk percentage
Between 0.5% and 2% per trade is the range most risk frameworks land on, and the reason is arithmetic rather than taste. Losses compound against you unevenly: a 50% drawdown needs a 100% gain to recover, while a 10% drawdown needs only 11%.
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11.1% |
| 25% | 33.3% |
| 50% | 100% |
| 75% | 300% |
Staying in the shallow part of that table is worth more than any entry signal.
Reading the risk-reward ratio
A ratio of 1:3 means you stand to make three times what you are risking. It does not make the trade good on its own — a strategy winning 20% of the time at 1:3 barely breaks even. Pair the ratio with an honest estimate of how often your setup actually works. If you trade with leverage, check the liquidation calculator as well: a stop only protects you if it sits comfortably inside your liquidation price.
Common questions
How do I calculate position size in crypto?
Divide the money you are willing to lose by the distance between your entry and your stop loss. That gives the number of units to buy; multiply by entry price for the position value.
What percentage should I risk per trade?
Most risk frameworks suggest 0.5% to 2% of the account per trade. The lower end keeps drawdowns shallow enough to recover from without needing outsized gains.
Does leverage change my position size?
No — leverage changes the margin you must post, not the size you should take. The stop distance and your risk budget determine size either way.
What is a good risk-reward ratio?
1:2 or better is a common target, but the ratio only matters alongside your win rate. A high ratio with a low win rate can still lose money over time.
Should I include fees in the risk amount?
For precision, yes. Fees add slightly to the loss when a stop triggers, so treat your risk percentage as a floor rather than an exact ceiling.