Position Size Calculator
Manage your risk by calculating the correct trade size.
Position Size
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The Key to Trading Risk Management
Successful trading is not just about picking winning stocks; it's about managing your risk. Position sizing is arguably the most critical aspect of risk management. It answers the question, "How many shares should I buy?" This calculator helps you answer that question based on your personal risk tolerance and the specifics of the trade. By ensuring that no single trade can significantly damage your account, proper position sizing helps you stay in the game long enough to be profitable.
Frequently Asked Questions (FAQ)
What is position sizing?
Position sizing is a risk management technique used by traders to determine the number of shares or units of a security to trade. The goal is to ensure that the potential loss on any single trade is limited to a small, predefined percentage of the trader's total account capital.
How is position size calculated?
Position size is calculated by first determining your maximum risk amount per trade (Account Size × Risk Percentage). Then, you find the risk per share (Entry Price - Stop-Loss Price). Finally, you divide the maximum risk amount by the risk per share to get the number of shares you can trade.
Why is a stop-loss important for position sizing?
A stop-loss is a predefined price at which you will exit a trade to cut your losses. It is essential for position sizing because it defines the 'risk' in your trade (the distance between your entry and your exit). Without a stop-loss, you cannot accurately calculate your position size.
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