The formula in one sentence: position size is computed as size = (capital × risk %) ÷ stop distance %. For the risk you set and the stop distance you define, the formula gives the amount to commit so that the loss — if the stop is hit — equals exactly that risk.
How to use it
Enter three numbers: your capital, the risk you choose to accept per trade (as a percentage of capital) and your stop distance (the gap between your entry price and your stop, as a percentage). The result updates instantly: the matching position size, and the amount risked if the stop is hit. Add an entry price to translate the size into units.
How to read the result
One number drives everything: the stop distance. At a fixed risk, the tighter the stop, the larger the position size — because the same loss is spread over a shorter distance. Here is what the formula produces for a capital of 10,000 and a risk of 1% per trade.
| Stop distance | Position size (capital 10,000, risk 1%) |
|---|---|
| 1% | 10,000 |
| 2% | 5,000 |
| 5% | 2,000 |
| 10% | 1,000 |
The classic mistake
The classic mistake: setting size by feel, without capping the risk per trade. Limiting the share of capital risked on each position is the principle that protects against the risk of ruin — a loss you can no longer recover from. The 1 to 2% per trade range is often cited as a documented benchmark, to be adapted to your situation, and in no way advice from Sextant.
At Sextant
At Sextant — a transparent quant platform — sizing is never left to the mood of the moment: the size of each position follows from an explicit risk rule, applied identically. The public logbook shows the real results, fees and slippage included, and the methodology explains how risk is bounded.
Frequently asked questions
How do you calculate a position size?
With size = (capital × risk %) ÷ stop distance %. For example, a capital of 10,000, a risk of 1% and a stop at 2% give (10,000 × 1%) ÷ 2% = 5,000: the position commits 5,000, and the loss at the stop is 100 — exactly the risk set.
What is risk per trade?
It's the share of capital you accept to lose if the stop is hit on a position. Expressed as a percentage of capital, it fixes the amount at stake regardless of the asset. This calculator applies the risk you enter; it recommends none.
Why does a tighter stop give a larger position?
Because, at a constant risk, the position size is inversely proportional to the stop distance. A stop twice as close absorbs the same loss over a distance twice as short: you therefore need a position twice as large for the loss at the stop to stay identical.