1
Dollar risk
Account equity multiplied by the selected risk percentage.
Lesson · Trading Risk Management
Position Sizing
Calculate shares or contracts from account risk, entry price, stop price, contract multiplier, and estimated execution cost.
Core concepts
What to understand
Keep the process direct: define the risk, calculate it, and enforce the limit.
2
Unit risk
Entry-to-stop distance multiplied by the instrument value per point.
3
Quantity
Dollar risk divided by unit risk, rounded down to a tradable amount.
Interactive lab
Change the risk conditions
Adjust the controls and read the market behavior and account impact after each change.
Position Sizing Lab
Synthetic educational data · no live market connection
RISK MODEL
Risk process
Apply it in order
Risk calculations should happen before the order is submitted.
Calculate the risk budget
Convert the selected account percentage into dollars.
Calculate risk per unit
Include stop distance, multiplier, fees, and a reserve for slippage — the distance between the stop price and the fill actually received, which is the subject of Gap, Slippage, Liquidity, and Execution Risk.
Round down
Never round quantity upward beyond the risk budget.
Knowledge check
Check your understanding
Select one answer for each question. Feedback appears immediately.
1. What happens to position size when stop distance doubles?
For the same dollar risk, doubling unit risk approximately halves quantity.
2. Why round position size down?
Rounding down keeps planned risk at or below the budget.
3. What should be included with entry-to-stop distance?
Fees and execution slippage increase the effective loss per unit.
4. Equity $40,000, risk 1%, entry 52.00, stop 50.00, slippage reserve 0.10 per share. Quantity?
Budget = $40,000 × 1% = $400. Risk per share = (52.00 − 50.00) + 0.10 = $2.10. $400 ÷ $2.10 = 190.5, rounded down to 190 shares, risking $399.
Practical rules
- Determine stop distance before quantity.
- Use the correct contract multiplier or option premium multiplier.
- Round down and recalculate actual risk.
Common mistakes
- Sizing from buying power.
- Using the same share count for every setup.
- Ignoring gaps, spread, and commissions.
References
Official reading
The labs use simplified synthetic examples. These sources cover the underlying risk and execution concepts.
CME Group · Trade and Risk Management
Entry-to-stop distance and account equity determine capital at risk.
CME Group · Calculating Futures Profit or Loss
Contract movement must be converted using tick or point value.