The Position Sizing Formula for Any Market

Step 3 of 6 in Trading Foundations.

Stocks, forex, futures and crypto all use the same position sizing formula. Only the units change — shares, lots, contracts or coins — and the whole job is converting your stop distance into "what one unit loses if I am wrong".

The formula

Units = (balance × risk %) ÷ per-unit risk

The numerator is your risk amount: the cash you accept losing on this trade. The denominator is the per-unit risk: what a single share, lot, contract or coin loses between entry and stop.

Everything market-specific lives in the denominator. Get that one number right and the formula does the rest.

Stocks: per-unit risk is a price difference

The easy case — per-share risk is just entry minus stop.

A $25,000 account risking 0.75% has a $187.50 risk amount. Buying at $182.40 with a stop at $178.90 gives a per-share risk of $3.50.

$187.50 ÷ $3.50 = 53.57 → 53 shares

Always round down. Those 53 shares are worth $9,667, roughly 39% of the account, while the loss if the stop hits is $185.50.

Forex: per-unit risk is pips × pip value

In forex the stop is quoted in pips, so the per-unit risk is the stop distance multiplied by what a pip is worth for the lot you are sizing.

One standard lot (100,000 units) of a USD-quoted pair is worth $10 per pip. A 40-pip stop therefore risks $400 per standard lot.

A $5,000 account at 1% risk has a $50 risk amount:

$50 ÷ $400 per lot = 0.125 standard lots

That is 12,500 units — one mini lot plus a bit, or twelve micro lots if your broker only trades round micros. Round down to 0.12 lots and the actual risk is $48.

The pip value itself changes with the pair. JPY pairs use a 0.01 pip instead of 0.0001, and any pair not quoted in your account currency needs converting, which is what the pip value calculator handles.

Futures: per-unit risk is ticks × tick value

Futures sizing is where the formula bites, because you cannot buy a fraction of a contract.

Per-contract risk = (stop distance ÷ tick size) × tick value.

Take a $10,000 account at 1% risk — a $100 risk amount — with a 12-point stop on the S&P 500:

One MES contract risks $60, comfortably inside the budget. One ES contract risks $600 — six percent of the account on a single trade. The formula returns 0.17 contracts, and since 0.17 contracts do not exist, the honest answer is that this account cannot take the ES trade at this stop.

This is the most useful thing position sizing does in futures: it tells you when a trade is simply too big for the account, before the market does.

Crypto: per-unit risk is a price difference again

Crypto behaves like stocks, with the convenience that positions are divisible to many decimal places — so you rarely have to round away much risk.

An $8,000 account at 1.5% risk has a $120 risk amount. Entering BTC at $62,400 with a stop at $60,900 gives a per-coin risk of $1,500:

$120 ÷ $1,500 = 0.08 BTC

A position worth $4,992 — 62% of the account — that loses $120 if wrong. On a leveraged perpetual the position value determines the margin posted, but the risk is still $120, because the stop is what defines the loss.

The mistakes that break the formula

• Sizing from what you can afford. "I have $10,000, so I will buy $2,000 of it" is not position sizing; it ignores the stop entirely. Two trades with the same dollar value can carry wildly different risk.
• Rounding up. 53.57 shares becomes 53, not 54. Rounding up quietly puts you over your own limit on every trade.
• Reusing yesterday's size. The per-unit risk changes with each setup's stop distance. A fixed share count means your real risk swings with volatility.
• Forgetting costs. Spread, commission and slippage all come out of the same budget. On short-stop, high-frequency strategies, subtract them from the risk amount before sizing.