Trading decisions usually start with direction: long or short, now or later. Position sizing is about something else. It decides how much a wrong call costs you, and it is settled before the trade opens. You can be right about the market and still damage an account with the wrong size. You can be wrong often and survive, if the size was right each time.
This is a walkthrough of the mechanic. It covers the inputs, the calculation in words, what the calculation leaves out, and how it behaves under a loss limit. It does not tell you what share of your account to risk. That number is yours to set. What follows is how to turn it into a position size that actually matches it.
Key Takeaways
- Position size is the output of a calculation, not a starting point: risk amount divided by the money lost per unit if the stop is hit.
- Leverage does not appear in the sizing formula; it decides how much margin the finished position ties up.
- The real loss at the stop includes fees, slippage and funding, so the risk amount has to leave room for them.
- Sizing from a fixed fraction of current equity makes positions smaller after losses and larger after gains.
- On an account with an equity-based daily limit, the risk of every open position draws on the same room.
What position sizing actually decides
Two traders take the same setup. Same entry, same stop, same target. One loses a small, planned amount when the stop is hit. The other loses enough to put the account in trouble. The chart was identical. The only difference was the number of units each of them bought.
That is the job of position sizing. Size turns a price move into money. A stop sets where you exit. The size sets what that exit costs.
We covered the stop side in stop-loss orders: types, placement logic, and common mistakes: which order the stop turns into, and why placement answers to volatility and the risk budget. This piece starts where that one stops. It takes the stop as given and asks how large the position should be.
The inputs behind every size
Every sizing calculation runs on the same short list of inputs. Get each one right before you calculate anything.
The account figure you size from
You need a base to take a fraction of. The usual choices are balance, which counts only closed trades, and equity, which adds the result of positions still open. They can differ by a lot while trades are running.
Sizing from balance ignores a floating loss you are already carrying. Sizing from equity reflects it. If your account's limits are measured on equity, sizing from equity keeps the calculation on the same basis as the rule that can end the account. We explained why the measurement basis matters in what is a drawdown: max, daily, and trailing drawdown explained.
The share of the account you put at risk
This is the risk per trade: the part of the account you accept losing if this specific trade hits its stop. It is a decision, not a market fact. It depends on your account rules, how many positions you hold at once, and how many losing trades in a row you want to be able to absorb.
Expressed as a fraction, it scales with the account. Expressed as a fixed amount, it does not. Both are valid. They behave differently over a streak, which a later section covers.
The distance to your stop
The stop distance is the gap between your entry price and your stop price. On its own, it is a price difference, not money. You still need the value of that move for one unit of the instrument.
For a linear perpetual future, one unit is usually one unit of the underlying asset. The money lost per unit is then simply the entry price minus the stop price for a long, or the reverse for a short. Other contract types quote size differently, so check the contract specification before you calculate.
The calculation, in words
With the inputs in place, the calculation is short:
Position size (units) = Risk amount / Loss per unit at the stop
The risk amount is your account figure times your risk fraction. The loss per unit at the stop is the stop distance expressed in money for one unit. Divide the first by the second, and you get the number of units that loses exactly your risk amount when the stop fills at its price.
Walk through it without numbers. Suppose you hold the risk amount constant and the setup needs a wider stop. The loss per unit goes up, so the number of units goes down. A tighter stop does the reverse. Your position gets larger, but the money at stake stays the same. Same risk. Different size.
The notional value of the position follows afterwards: units times entry price. It is a result, not an input. If you start from a notional you would like to hold, you have skipped the step that ties the size to your risk.
Where leverage fits, and where it does not
Leverage is missing from the formula above, and that is not an oversight. Your loss at the stop depends on the number of units and the stop distance. The leverage you choose does not change either of them.
What leverage changes is the margin the position ties up, and with it the distance to a forced close. We went through that relationship in leverage and margin in crypto trading.
For sizing, it leaves one check to run after the calculation. The liquidation price has to sit well beyond your stop, not in front of it. If the venue would close the position before your stop is reached, you are no longer risking the amount you calculated. You are risking whatever the forced close takes, plus any fee attached to it.
So size first, then choose the leverage that carries that size with room to spare. Not the other way around.
What the formula leaves out
The calculation assumes your stop fills at exactly its price, at no cost. In practice, it rarely does. Three things widen the real loss.
Fees. You pay a fee to open the position and another to close it. Both scale with notional value, not with your stop distance. How the order type changes that cost is the subject of our guide to maker and taker fees.
Slippage. A stop that converts into a market order fills at the next available price. In a fast or thin market, that can be beyond the trigger. The gap between quote and fill is covered in slippage: why your fill isn't your quote.
Funding. A perpetual position held through funding intervals pays or receives funding for as long as it stays open. On the paying side, that cost adds up. The mechanism is explained in funding rates in perpetual futures.
The practical fix is simple. Size for the loss, including costs. Either reduce the risk amount by your expected costs before you divide, or add an allowance for costs to the loss per unit. Your size comes out a little smaller, and your real loss at the stop lands closer to your plan.
Rounding and minimum sizes
The formula almost never returns a size the venue accepts as it stands. Order sizes usually move in fixed increments, and markets usually set a minimum order size.
Round to the nearest allowed increment below the result. Down, not up. Rounding up quietly raises your risk above the amount you set. Rounding down keeps it slightly under, which is the side you want to err on.
Sometimes the calculated size is below the smallest order the market accepts. That is not a reason to take the minimum anyway. It means the trade does not fit your risk amount at that stop distance. Either the stop is wider than this account can carry for this setup, or the setup belongs on a different instrument.
Fixed fraction against a fixed amount
How you express the risk per trade changes how your size behaves over a run of trades.
With a fixed fraction, you recalculate the risk amount from your current account figure. After losses, the account is smaller, so each new position is smaller too. After gains, positions grow. The fraction stays the same while the money at risk follows the account.
With a fixed amount, the money at risk stays constant whatever the account does. After a losing streak, that same amount is a larger share of what is left.
Shrinking size after losses slows the damage. It does not make the account easier to rebuild. The deeper a drawdown, the larger the gain needed to recover it, and smaller positions make that climb slower. That trade-off is part of the method, not a flaw in it.
Whichever form you use, decide in advance when you recalculate: per trade, per day, or at a scheduled review. Changing size in the middle of a session because of the last result is a warning sign we described in tilt in trading.
Sizing inside an account's loss limits
On an evaluation or funded account, your risk per trade sits inside rules you did not set. A loss limit on equity counts open positions at their current result, not only closed trades.
On CarrotFunding, the Maximum Daily Loss is 5% of equity on the 2-Phase Challenge and 4% of equity on the 1-Phase Challenge, recalculated at 00:00:00 UTC. A breach is automatic and final.
That changes how you read your own sizing. A risk amount that looks modest for one trade can be too large once several positions are open together. If their stops can be hit in the same stretch, their risk amounts add up against the same room. Add the floating loss of positions already running, and the room left for the next trade can be smaller than it looks on a fresh day.
Before each new position, check two things. Does its risk amount fit your plan for one trade? And does it still fit after you subtract the risk of everything else that is open?
Where sizing usually breaks
A few recurring mistakes undo the calculation without anyone noticing.
- Starting from available margin. The margin you could commit says what the account can hold, not what the stop distance and your risk amount allow.
- Tightening the stop to fit a bigger size. The stop belongs where the setup needs it. Moving it closer only to buy more units turns a sizing problem into a placement problem.
- Leaving costs out. Fees, slippage and funding come on top of the stop distance, and they add up across many trades.
- Adding to a position without recalculating. Every new entry changes the total units and the average entry. The combined loss at the stop has to fit your risk amount, not each entry on its own.
- Resizing after a loss to win it back. That is not position sizing. It is the last result deciding the next size.
Conclusion
Position sizing does not make a trade better. It decides what the trade is allowed to cost, before you know whether it works. The calculation itself is mechanical. The decisions around it are not: which account figure you size from, what share you put at risk, how much room you leave for costs, and how the risk of open positions adds up under your limits.
If the calculated size feels too small to bother with, that is information, not an obstacle. It tells you the setup, the stop and this account do not fit together. The response is a different setup, not a different size.
FAQ
Is there a right percentage to risk per trade?
Not one that fits every account. The share depends on your loss limits, how many positions you hold at once and how long a losing streak you want to survive. This article does not recommend a figure. Work backwards from your account rules: the room under your daily limit and your overall limit sets the outer bound for what a single trade can take.
What does a position size calculator do differently?
Nothing in principle. It runs the same calculation: risk amount divided by loss per unit at the stop. Check what it assumes, though: whether it returns units or notional value, and whether it includes fees and slippage. A calculator also cannot tell you where your stop belongs; you still have to bring that input yourself.
What if the stop is so wide that the size becomes tiny?
Then the setup and your risk amount do not fit together on this instrument. Do not pull the stop closer to get a bigger size, because that only moves the risk into the placement. You can accept the small size, wait for a setup with a tighter natural stop, or pass on the trade.
Should I recalculate the size of a position that is already open?
Not to change its risk after the fact. The size was set for the stop you chose at entry. If you move the stop in your favor, the risk falls. If you add units, recalculate the combined loss at the stop. Adding to a losing position improves your average entry, but it raises that combined loss. Check the loss, not the average.
