Position sizing: how much should I buy? The 1% rule explained
Two people can take the same trade and get very different results, because one put in far too much. Position sizing decides how much you buy, from how much you are willing to lose.
Start from the loss, not the gain
Before buying, decide how much of your account you are prepared to lose if the stop is hit. Many traders use 1%: with $1,000, a losing trade costs about $10. Ten losses in a row would cost about 10%, painful but survivable.
The formula
Position size = amount you risk ÷ distance to your stop.
Example: you have $1,000 and risk 1% ($10). You want to buy at $100 with a stop at $95, a $5 distance. $10 ÷ $5 = 2 units, a $200 position. If the stop is hit, you lose 2 × $5 = $10, as planned.
Why a wide stop means a smaller position
If the stop were at $90 instead ($10 away), the same $10 risk buys only 1 unit. A wider stop is not riskier if you size down; it just means a smaller position.
Caps and cash
- Cap any single position, for example at 25% of the account, even if the formula allows more.
- Keep some cash aside so you are never forced to sell.
- Remember fees and slippage: the real loss at the stop is usually a little more than planned.
Common mistakes
- Choosing the amount first and the stop afterwards.
- Moving the stop further away once the trade goes wrong.
- Using leverage to make a position bigger than the formula allows.
The prediction planner on our chart page includes a calculator that does this for you from your account size, risk percentage and stop.
Try it yourself. Free, no account needed.
Use the position-size calculatorThis guide is educational and is not financial advice.
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Frequently asked questions
What is the 1% rule?
Risk no more than 1% of your account on any single trade.
How do I calculate position size?
Divide the amount you are willing to lose by the distance between your entry and your stop.