---
cover: /images/blog/glossary-crypto-terms.jpg
description: "Position sizing sets trade quantity from account risk and the distance to an exit level. A worked example shows the basic calculation and its limits."
tags: ['Trading', 'Risk Management', 'Money Management', 'Portfolio Strategy', 'Discipline', 'Glossary']
createdAt: 1713644503000
---
# Position Sizing

Position sizing sets the amount of an asset or contract to trade. A trader can calculate a size from a planned loss amount and the distance between entry and stop price. This method sets exposure before the trade, but it cannot ensure a stop fills at the planned price.

## Fixed-Risk Calculation

Risk amount = account equity × selected risk fraction

Position size = risk amount ÷ absolute distance from entry to stop

The risk fraction is a choice for the trader's plan, not a universal setting. The calculation also leaves out fees, funding, slippage, contract multipliers, and gaps unless the trader adds them.

## Example

Assume an account has $10,000 in equity. A trader chooses a hypothetical 0.5% risk amount, or $50. The entry price is $100 and the planned stop is $95, so the distance is $5 per unit. The calculated size is 10 units before fees and execution costs.

If the asset gaps below $95, the fill may produce a larger loss than $50. A leveraged contract adds margin and liquidation rules that this spot-style formula does not capture.

## Position Size and Notional

For a linear contract, notional exposure depends on contract quantity and price. That value can exceed the margin assigned to the position. The trader should calculate notional, collateral, fees, and liquidation terms as separate parts of the order plan.

See [Leverage](/glossary/leverage), [Margin](/glossary/margin), [Liquidation Price](/glossary/liquidation_price), and the [Position Size Calculator guide](/blogs/position-size-calculator).