Set the loss budget before solving for size
Per-trade risk equals strategy account equity multiplied by a chosen risk fraction. A wider entry-to-stop distance creates more potential loss per unit, so the same loss budget supports fewer units.
The risk fraction is the user's constraint, not a universal standard. The 1% figure in the example is only a reproducible example input, not a recommendation.
- A long stop is generally below entry; a short stop is generally above entry.
- Account equity should include only capital actually allocated to the trading strategy.
- Without a defined stop or invalidation point, this model cannot define per-unit risk.
Position quantity formula
Let A be account equity, p the per-trade risk fraction, E entry price, and S stop price. When costs are included, f is the estimated round-trip fee rate and s the estimated slippage rate.
Fees and slippage are approximated as a share of entry notional to reserve room in the loss budget; this is not an execution guarantee.
Position size and leverage answer different questions
Position size determines the theoretical loss if price reaches the stop. Leverage primarily changes required initial margin and liquidation distance. More leverage does not automatically justify a larger loss budget for the same stop.
The calculated notional must still pass available-margin, maximum-leverage, minimum-order, and liquidation-distance checks. If estimated liquidation is closer than the stop, the leverage and margin setup is not directly executable as planned.
| Variable | Direct effect | Still verify |
|---|---|---|
| Higher risk fraction | Higher budget and quantity | Tolerance for a losing streak |
| Wider stop | Lower quantity for the same budget | A strategy-based stop level |
| Higher leverage | Lower initial margin | Liquidation does not precede the stop |
| Higher costs | Higher unit risk and lower quantity | Liquidity and order type |
The model cannot remove execution risk
A normal stop triggers an order; it does not guarantee a fill price. Fast markets, gaps, poor liquidity, partial fills, and the actual fee tier can make the realized loss larger than budgeted.
Round the output down to the exchange's quantity step, then recalculate actual notional, estimated costs, and liquidation distance. Correlated positions can also make portfolio risk much larger even when each trade individually meets its budget.
- Do not count long-term holdings again as active strategy risk capital.
- Round quantity down rather than up so rounding does not exceed the budget.
- Use a more conservative slippage allowance in volatile or thin markets.
Worked example
Reproducible example: sizing a long with a 1% budget
- Input
- Strategy account equity A: 10,000 USDT
- Input
- Example risk fraction p: 1%, creating a 100 USDT risk budget
- Input
- Entry E: 50 USDT; stop S: 48 USDT
- Input
- Estimated round-trip fee f: 0.10%; estimated slippage s: 0.10%
- Step 1
- Price risk = |50−48| = 2 USDT per unit
- Step 2
- Cost allowance = 50×(0.001+0.001) = 0.10 USDT per unit
- Step 3
- Quantity = 100÷2.10 = 47.6190 units
- Step 4
- Notional = 47.6190×50 = 2,380.95 USDT
Before applying the exchange quantity step, the model returns about 47.6190 units and 2,380.95 USDT notional.
The 1%, fee, and slippage values are example assumptions. Round down, use the current account fee, and compare the stop with liquidation before execution. Slippage can push the loss above 100 USDT.
Frequently asked questions
Is 1% a recommended risk percentage?
No. It is a common example example. Appropriate risk depends on capital purpose, strategy, volatility, tolerance for consecutive losses, and personal circumstances.
Is risk percentage the same as position size as a share of the account?
No. Risk percentage is the planned loss at the stop as a share of the account. Position notional can be larger or smaller than that amount.
Can higher leverage let me open a larger position?
It may reduce required initial margin, but it should not change the pre-set loss budget and it shortens liquidation distance. Size from risk first, then check leverage feasibility.
Why include fees and slippage in per-unit risk?
Using only the entry-to-stop move understates total loss. Fees reduce equity directly, while slippage can make the exit price worse than planned.
Can I use the formula without a stop-loss?
The formula needs a defined invalidation point to measure per-unit risk. Without an exit rule, the stated risk cap does not hold.
Evidence
Official sources and checks
Each formula and exchange rule links to the official documentation, so you can check it yourself.
- Proper Position SizeCME Group
Sizing from acceptable account loss and stop distance
Recorded: 2026-08-31 - How to Calculate Position Size in TradingBinance Academy
Account risk, invalidation distance, formula, fees, and slippage limits
Recorded: 2026-08-31 - A Beginner's Guide to Risk ManagementBinance Academy
Distinguishing risk amount from notional position size
Recorded: 2026-08-31
How this page was produced: Drafted with AI assistance · worked examples and links checked automatically before publishingLast updated