How to Calculate Position Size (the 1% Rule Explained)
Most beginners obsess over entries and ignore position sizing entirely. Big mistake. You can be wrong half the time and still make money if you size properly. Mess this up and one bad trade can erase months of gains.
Learn the position size formula, walk through a real 1% rule example, and see the mistakes that turn a normal stop-out into an account-wrecking loss. Pair it with our free calculator.
What is position sizing?
Position sizing answers one question: how many shares should I buy? It's not about picking winners — it's about limiting damage when you're wrong.
The goal: cap every loss to a small percentage of your account. Most pros risk 1–2% per trade, max.
If you don't define risk before entry, you're guessing. Guessing feels fine in a bull market and catastrophic the first time volatility expands against you.
The position size formula
Position size = (Account size × Risk %) ÷ (Entry price − Stop-loss price).
Example: $10,000 account, risking 1% ($100). Entry at $50, stop at $48. Risk per share = $2. Buy $100 ÷ $2 = 50 shares.
If it hits your stop, you lose exactly $100. Not $150 because you got emotional. Not "let me give it more room." $100. Done.
Volatile names need fewer shares for the same dollar risk. Quiet names can use more shares. The formula adjusts automatically — your ego doesn’t get a vote.
Why the 1% rule works
You'd need 100 straight losses to zero out. That's basically impossible if you have any edge at all.
More importantly, it keeps you sane. When the downside is tiny and fixed, you stop panic-selling.
Consistency compounds. Traders who survive long enough to learn usually sized small while they were still wrong a lot.
Common mistakes
Sizing by feel instead of using a stop-loss. If you don't know where you're wrong, you can't calculate risk.
Going bigger on "sure things." Every trade gets the same risk budget. No exceptions.
Forgetting commissions and slippage. On small accounts, fees can double your real risk.
Moving the stop farther after entry. That silently increases risk — recalculate size instead of “giving it room.”
Practice before you scale
Use a free position size calculator every time until the habit is automatic. Then practice the same risk rules in a paper trading simulator before increasing real size.
Journal the planned risk next to the outcome. If your average loss is bigger than your planned risk, you’re breaking the rule somehow — find where.
Next steps
Concepts stick when you apply them. Open a related calculator, run your own numbers, and — if you’re still learning execution — practice with paper trades before increasing real size. Browse more guides or the full set of free trading tools.
Free tool
Position Size Calculator
Turn account size, risk %, entry, and stop-loss into an exact share count. Built around the 1% rule so one bad trade can’t wipe out months of progress. Essential risk math before you click buy.
Other free tools
- Stock Market Simulator — Practice trading with fake money.
- Compound Growth Projector — See how your portfolio grows over time.
- Dividend & DRIP Calculator — Forecast your dividend income.
Ready to put this into practice?
Trading 212 — Commission-free stocks & ETFs with fractional shares. Open an account in minutes and start applying what you learned here.
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This is educational content, not financial advice. Investing carries risk — you can lose money. Do your own research and consider a qualified advisor for personal decisions.