Stock Position Sizing Calculator
Determine optimal share quantity based on risk management principles
Calculate Position Size
Size your position to match your risk tolerance and stop-loss strategy
Typical: 1-2% per trade
Must be below entry price
What is Position Sizing?
Position sizing is a risk management technique that determines how many shares to buy based on your total portfolio value, risk tolerance, and stop-loss level. Proper position sizing helps protect your capital and ensures no single trade can catastrophically damage your portfolio.
The 2% Rule
Most professional traders never risk more than 2% of their total portfolio on a single trade. This means if you have a $100,000 portfolio, you should risk no more than $2,000 per trade. This calculator helps you determine exactly how many shares to buy to stay within your risk limit.
Formula
Risk Amount = Portfolio Value × (Risk % ÷ 100)
Risk per Share = Entry Price - Stop Loss
Shares to Buy = Risk Amount ÷ Risk per Share
Why Use Position Sizing?
- Protect your capital from catastrophic losses
- Maintain consistent risk across all trades
- Trade with confidence knowing your maximum loss
- Avoid emotional decision-making during drawdowns
- Compound gains systematically over time
Example
With a $100,000 portfolio and 2% risk tolerance, you can risk $2,000 per trade. If you want to buy stock at $50 with a stop loss at $45 (risking $5 per share), you should buy 400 shares: $2,000 ÷ $5 = 400 shares. This ensures that if your stop loss is hit, you only lose $2,000 (2% of your portfolio).
Position Sizing Across Portfolio
Proper position sizing prevents portfolio concentration risk. If you follow the 2% rule across 10 positions, you're risking 20% maximum exposure. Even if every trade hits its stop-loss (unlikely), you retain 80% of your capital to rebuild and continue trading.
Contrast this with all-in betting: one bad trade wipes you out. Position sizing transforms trading from gambling into disciplined risk management. The difference between professionals and amateurs isn't picking better stocks - it's surviving losing streaks through proper sizing.
Adjusting for Volatility
Volatile stocks require wider stop-losses to avoid getting shaken out by normal price swings. If a stock typically moves 5% daily, setting a 3% stop-loss will trigger constantly. You need a 7-10% stop-loss for breathing room.
Wider stop-losses mean buying fewer shares to maintain your 2% risk limit. A stock with a $10 stop-loss distance gets half the position size of a stock with a $5 stop-loss distance (same risk). This automatically limits exposure to riskier positions.
Psychology of Position Sizing
Knowing your maximum loss before entering eliminates emotional decision-making. If you're risking $1,000 on a trade and it's down $800, you already accepted this possibility. No panic selling. No hoping it recovers. Your stop-loss executes at $1,000, and you move to the next trade.
This psychological freedom is position sizing's greatest gift. You trade without fear because losses are predetermined and acceptable. Conversely, trading without proper sizing creates anxiety - every tick feels life-or-death because you have too much at stake.
Common Sizing Mistakes
New traders often risk 10% or more per trade, chasing quick profits. One string of losses destroys them. They blame their stock picks, but the real problem was position sizing. Even mediocre stock selection works with proper sizing; perfect stock picks fail with reckless sizing.
Another mistake: averaging down without planning. Adding to losing positions doubles your risk exposure. If you're down 20% and add more shares, you're now risking 4% or more of your portfolio on a struggling trade. Calculate new position sizes before averaging down.
Frequently Asked Questions
What is the 2% rule in position sizing?
The 2% rule states that you should never risk more than 2% of your total portfolio on a single trade. This protects your capital from catastrophic losses - even if you lose 10 consecutive trades at 2% each, you still retain 80% of your capital.
How do I calculate how many shares to buy?
Divide your risk amount by your risk per share. For example, with $100,000 portfolio at 2% risk ($2,000) and $5 risk per share (entry $50, stop $45), buy 400 shares: $2,000 ÷ $5 = 400 shares.
Why is position sizing important?
Position sizing prevents any single trade from catastrophically damaging your portfolio. It maintains consistent risk across all trades, eliminates emotional decision-making, and allows you to trade with confidence knowing your maximum potential loss.