Position Sizing

Position sizing is the process of selecting trade quantity so potential loss and total exposure remain consistent with predefined account-risk limits.

A sizing method can combine account equity, acceptable loss, entry price, planned exit, contract value, leverage, and expected slippage. Correlated positions and gaps can make several apparently small trades behave like one large exposure or lose more than planned. Sizing limits damage from a wrong decision but cannot make a poor strategy profitable or guarantee that an exit executes at its selected level.

A size calculated from stop distance understates risk when price can gap through the stop or liquidity is insufficient.