Risk process
Position sizing: turn a risk limit into a reviewable calculation
Position sizing starts with a personal risk limit, not a forecast. The calculator below shows the arithmetic for a hypothetical share position. It is not a recommendation to trade, and it cannot account for gaps, slippage, taxes, contract multipliers, or every market condition.
- Last updated
- 2026-09-21
- Educational guide
- 7 min read
Define the inputs before calculating
Choose an account value and a maximum amount you are prepared to lose on this specific idea. Then write an entry reference and an exit level that would show your premise is no longer valid. The difference between the two is the risk per unit in this simplified example.
The financial importance of a loss depends on more than an account balance. FINRA notes that goals, time horizon, reliance on the funds, and comfort with losses all affect risk tolerance.
- Use money you can evaluate in the context of your wider financial situation.
- Include a buffer for commissions, spread, taxes, and possible execution differences.
- For options, futures, leveraged products, or fractional units, check the product-specific contract terms instead of applying a share formula unchanged.
Understand the simplified formula
Risk budget equals account value multiplied by the chosen risk percentage. Risk per unit equals the absolute difference between the reference entry and exit level. Dividing the risk budget by risk per unit gives a maximum whole-unit count in this simplified model.
A calculated quantity can still be too large for concentration, liquidity, or buying-power reasons. It is a starting point for a review, not an approval.
Review concentration separately
A position-level loss limit does not make a portfolio diversified. Investor.gov explains that asset allocation and diversification depend on time horizon and risk tolerance, and that holdings can drift from an intended mix over time.
Before acting, compare the proposed position with related holdings, sector exposure, and any money needed for near-term goals. Consider whether several positions could move together in a stressed market.
Illustrative position-sizing calculator
This uses only the values you enter. It does not use live market prices, account data, or a recommendation engine.
- Illustrative risk budget
- 100
- Illustrative risk per unit
- 5
- Risk-based whole units (before affordability checks)
- 20
- Illustrative position value
- 2,000
This arithmetic excludes gaps, slippage, fees, taxes, liquidity, leverage, contract multipliers, and portfolio concentration. It cannot guarantee that losses stop at the chosen amount.
Educational information only. It is not investment, tax, or legal advice and does not recommend buying or selling any security. Investing involves risk, including possible loss of principal.
Sources and further reading
The sources below explain the concepts used on this page. They do not validate a particular trade, portfolio, or outcome.
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