Position sizing connects a trade idea to a defined amount of account risk. The calculation is only as useful as the assumptions and execution discipline behind it.
The basic formula
Risk amount = account equity × risk percentage. Position quantity = risk amount ÷ absolute distance between entry and stop price. This simplified calculation assumes the stop executes at the intended level and excludes fees, slippage and contract multipliers.
Example
Suppose an account has $5,000 in equity and the chosen risk budget is 1%, or $50. If the entry is $100 and the stop is $95, the distance is $5 and the simple position quantity is 10 units before costs.
Actual exposure, margin requirements and losses can differ, particularly during fast markets or for leveraged derivatives.
What the formula misses
Gaps, slippage, funding, trading fees, liquidation mechanics and contract specifications can all affect realized outcomes. Verify the instrument's rules before relying on a position-size estimate.
Disclaimer: This article is for general education and informational purposes only. It is not investment, legal or tax advice. Crypto assets and derivatives involve substantial risk.