Position Sizing
Deciding how much capital to commit to a single position, based on the loss that would be acceptable if it went wrong.
Formula
Position Size = (Account Value x Risk per Trade %) / Risk per Share
Unit
shares
In depth
Position sizing is the most powerful risk control available, because unlike a stop-loss it cannot be jumped by a gap or a circuit lock — the exposure is fixed at entry. The formula inverts the usual thinking: the stop distance determines the size, so a wider stop means a smaller position rather than more risk. Risking 1% to 2% of capital per position is a common convention, and it means a run of ten consecutive losses costs 10% to 20% rather than the account. Sizing to what the margin permits, rather than to what the loss would be, is the most common error in leveraged trading.
Worked example
A ₹10,00,000 account risking 1% per trade can lose ₹10,000. With a stop ₹25 below entry, the position is 10,000 / 25 = 400 shares. A ₹50 stop would halve that to 200 shares for identical rupee risk.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Position Sizing” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.