Lessons › Risk and money management › Position size from your stop
World 5 · Risk and money management · lesson 6 · level 3
Position size from your stop
The money you are willing to lose divided by the distance to your stop tells you how big the position can be.
In one line
The money you are willing to lose divided by the distance to your stop tells you how big the position can be.
Explained simply
Imagine you have 100 coins for bus rides and each ride costs 10 coins, so you can take 10 rides. Position size works the same way: the money you can lose is the budget, and the loss per share at your stop is the cost of each ride. Divide the budget by that cost and you know how many shares you can buy.
The lesson
Position size equals the money at risk divided by the distance from entry to stop. With a 1,00,000 rupee account and 1% risk you can lose 1,000 rupees, and buying at 500 with a stop at 490 risks 10 per share, so the size is 100 shares. A wider stop means a smaller position, and the size is rounded down to what the market allows, such as whole shares or lots. You choose the stop from the chart first and let the size follow.
A worked example
Illustrative example: with a 1,00,000 rupee account and 1% risk, you can lose 1,000 rupees (1,00,000 times 0.01). Buying at 500 with a stop at 490 risks 10 per share (500 minus 490), so the size is 100 shares (1,000 divided by 10). With a wider stop at 480, each share risks 20 (500 minus 480) and the size falls to 50 shares (1,000 divided by 20).
The same idea at four levels
- Beginner. Position size tells you how many shares, coins or lots to trade so a stop-out loses only your planned amount.
- Foundation. Size = money at risk ÷ distance from entry to stop, so 1,000 ÷ 10 = 100 shares.
- Intermediate. A wider stop means a smaller position and a tighter stop allows a bigger one, while the money at risk stays the same.
- Advanced. Round down to what the market allows, such as whole shares or 100-share units in Tokyo, then check the real risk after rounding.
- Expert. Experts pick the stop from the chart first and let the size follow, and they add costs and possible gaps to the stop distance before they size.
Mistakes to avoid
- Choosing the position size first and then squeezing the stop to fit.
- Forgetting to round down to whole shares or lots, which pushes the risk over the limit.
- Using the position's value instead of the stop distance to judge the risk.
Check yourself
What is the position-size formula?
Money at risk ÷ distance from entry to stop. The stop distance decides how many shares fit inside your risk.
You can lose 1,000 and the stop is 10 below entry. How many shares?
100. 1,000 divided by 10 is 100.
What happens to the position size when the stop is wider?
It gets smaller. More risk per share means fewer shares.
Why round the size down rather than up?
Rounding up pushes the loss above your limit. Rounding down keeps the risk within the plan.
Balance $10,000, 1% risk, entry $50.00, stop $48.50. How many whole shares?
66. $100 divided by $1.50 is 66.7, rounded down to 66.
Goal of this lesson: Calculate how many shares, coins or lots to trade so that hitting the stop loses a fixed amount.