Most beginners decide trade size by feel: "I'll put ₹50,000 into this one" or "buy two lots". Professionals decide it with a formula. Position sizing links three numbers — your capital, your risk per trade and your stop-loss — to give the exact quantity to buy or sell.
The basic formula
Quantity = Risk amount ÷ Risk per unit
- Risk amount = capital × risk percentage (for example 1%).
- Risk per unit = entry price − stop-loss price (for a long trade).
That is it. The formula automatically makes you buy less of volatile stocks with wide stops, and more of stable stocks with tight stops — so every trade risks the same amount.
Example 1: Stock trade
- Capital: ₹3,00,000
- Risk per trade: 1% → ₹3,000
- Entry: ₹1,250; stop-loss: ₹1,210 → risk per share ₹40
- Quantity = 3,000 ÷ 40 = 75 shares
- Position value = 75 × 1,250 = ₹93,750
Notice: you invest ₹93,750 but only risk ₹3,000. If the stop is hit, you lose about 1% of capital (plus costs).
Example 2: Wider stop on a volatile stock
- Same ₹3,000 risk
- Entry ₹400; stop ₹360 → risk per share ₹40
- Quantity = 75 shares, position value ₹30,000
Same risk, much smaller position — because the stock needs more room to move.
Example 3: Futures
Futures trade in fixed lots. If one lot of an index future would lose ₹6,500 between your entry and stop, and your risk limit is ₹3,000, one lot is already more than double your risk. Options: use a smaller account risk only if your plan allows it, choose a closer logical stop, or skip the trade. Lot sizes change from time to time — check the exchange's current contract specifications. The futures P&L calculator helps you see the money value of a stop.
Example 4: Option buying
When you buy an option, the maximum loss is the premium paid. Many option buyers size by premium: if risk is ₹3,000 and you plan to exit if the premium falls from ₹120 to ₹80 (₹40 per unit), you can afford 75 units. Check the contract's lot size to see whether that fits. Read options trading for beginners.
Example 5: Forex
Forex position size depends on pip value. If you risk $100 with a 25-pip stop on EUR/USD, you need a size where one pip ≈ $4 — about 0.4 standard lots. Use the forex lot size calculator and pip value calculator. See pips, lots and leverage explained.
Fixed percentage vs fixed amount
- Fixed percentage (e.g. 1% of current capital) shrinks risk automatically after losses and grows it after wins. Most traders prefer it.
- Fixed amount (e.g. always ₹2,000) is simpler but does not adapt to drawdowns.
Common position sizing mistakes
- Sizing by money invested instead of money at risk.
- Moving the stop further to "fit" a bigger position.
- Adding to losers — doubling down increases risk exactly when the trade is going wrong.
- Ignoring correlation — three similar trades at 1% each are close to a 3% bet on one idea.
- Forgetting costs — brokerage, STT and slippage add to the real loss. Check with the brokerage calculator.
How much should you risk per trade?
There is no single right answer. Consider:
- your experience (beginners: 0.5–1%),
- your strategy's typical losing streaks (Monte Carlo simulator),
- your emotional tolerance for drawdowns.
If a losing week at your current size makes you anxious or angry, your size is too big.
Make it a habit
Calculate size before every trade, write it in your plan and record it in your trading journal. Our free position size calculator does the maths in seconds.
Key takeaways
- Quantity = risk amount ÷ (entry − stop).
- Size from the stop so every trade risks a similar amount.
- Futures and options lots may be too big for small accounts — skipping is a valid choice.
- Avoid moving stops, averaging down and correlated over-exposure.
Frequently asked questions
What is position sizing in simple words?
It is deciding how many shares, lots or units to trade so that, if your stop-loss is hit, you lose only the amount you planned.
Is position sizing needed for long-term investing?
Investors use allocation instead — deciding what percentage of the portfolio goes into each investment.
How do I size positions in options?
Base it on the premium you are willing to lose or the premium level at which you will exit, and check that it fits within your risk per trade.
Is there a free position size calculator?
Yes — use our position size calculator.
BullishBrush provides stock market education only. We are not a SEBI-registered investment adviser or research analyst and do not give buy/sell recommendations or tips. Investments in securities markets are subject to market risks; read all related documents carefully before investing. Past performance does not guarantee future results.