B
Risk budget
Choose the maximum account loss before calculating quantity.
Lesson · Trade Setup and Execution
Position Sizing
Convert account risk into a maximum share or long-option quantity using the planned loss per unit, costs, and whole-unit rounding.
Synthetic educational examples
Core concepts
Use these concepts as explicit rules rather than changing them after seeing the outcome.
U
Per-unit risk
Include entry-to-stop loss and reasonable trading costs for each share or contract.
Q
Round down
Use whole tradable units without exceeding the risk budget.
Interactive lesson
Set the risk budget first. The quantity is an output: widen the stop and watch it fall.
Risk budget usedUnused budget from roundingRisk beyond budget
Position sizing process
The position quantity is an output of risk rules, not an input chosen from conviction.
1
Set account risk
Use equity and a predefined risk percentage or fixed dollar amount.
2
Calculate per-unit loss
Measure share risk or planned premium loss and include expected costs.
3
Divide and round down
Never round up beyond the account risk budget.
4
Check concentration and liquidity
A risk-sized trade can still be too concentrated or difficult to execute.
Position sizing drill
Score 0 / 0Calculate from risk budget and per-unit loss.
Sizing formulas
ACCOUNT RISK = EQUITY × RISK %
SHARES = floor(
ACCOUNT RISK ÷
(|ENTRY − STOP| + COST PER SHARE)
)
LONG OPTION CONTRACTS = floor(
ACCOUNT RISK ÷
PLANNED LOSS PER CONTRACT
)
Options limitation: An underlying-price stop does not map to one guaranteed option price. Delta, gamma, implied volatility, time decay, spread, and gaps can all change the realized premium exit.
Common mistakes
1
Choosing quantity before the stopThis forces structure to fit a preferred position rather than controlling risk.
2
Ignoring gaps and slippageActual losses can exceed planned stop distance, especially around events or in illiquid instruments.
3
Treating option premium and underlying movement as one-to-oneOption pricing introduces additional sources of risk and execution variance.
4
Using maximum buying power as position sizeAvailable leverage is not the same as acceptable loss.
Completion standard
✓
Finish when you can turn equity, risk percentage, entry, stop and costs into a rounded-down quantity.
Shares or contracts, never rounded up past the budget — and say what fraction of the account the position’s notional is.
Scope: This lesson teaches process and measurement. It does not provide live market data, personalized recommendations, or trade signals.