Position sizing guide: how much to risk on each trade
Position sizing — deciding how much to put on each trade — matters more to your survival than which strategy you trade. A profitable edge with reckless sizing still blows up; a modest edge with disciplined sizing compounds for years. This guide covers the main methods, from fixed-fractional to Kelly, and how to apply them to a bot.
Why sizing matters more than entries
You can have a genuine edge and still go broke if you bet too big, because a string of losses — which happens to every strategy — can drop your account below recovery. Risk too much per trade and a normal losing streak becomes ruin. Position sizing controls how large that risk is, which makes it the most important decision after having an edge at all. For the deeper math see our position sizing strategies guide.
The main sizing methods
- Fixed-fractional / percent-risk — risk a fixed percentage of equity (commonly 0.5–2%) on each trade. Your position size is derived from the distance to your stop, so a wider stop means a smaller position. This is the standard professional approach.
- Fixed dollar — risk the same dollar amount each time. Simple but does not scale with the account.
- Volatility-based (ATR) — size inversely to recent volatility so each position carries similar risk regardless of how jumpy the asset is.
percent-risk sizingrisk_per_trade = equity * 0.01 # risk 1% of equity
stop_distance = entry - stop_price
position_size = risk_per_trade / stop_distance
Kelly and its dangers
The Kelly criterion calculates the bet size that maximises long-run growth from your win rate and payoff. The catch: full Kelly produces gut-wrenching drawdowns and assumes you know your edge precisely — which you never do. If your real edge is smaller than estimated, full Kelly overbets and can ruin you. Most practitioners use a fraction (half-Kelly or less) to keep drawdowns survivable.
Sizing inside a bot
A bot should compute position size automatically from current equity and the stop distance on every trade, never use a hard-coded lot size, and respect a maximum total exposure across open positions. Use our position-sizing calculator to sanity-check the numbers, and backtest the sizing rule in the backtester — the same entries with different sizing produce wildly different drawdowns.
Frequently asked questions
How much should I risk per trade?
A common rule is to risk 0.5% to 2% of account equity per trade. Risking more turns a normal losing streak into account-ending ruin. The exact figure depends on your strategy's drawdown and your risk tolerance.
What is fixed-fractional position sizing?
You risk a fixed percentage of equity on each trade, and derive the position size from the distance to your stop. A wider stop means a smaller position, so every trade carries the same percentage risk.
Should I use the Kelly criterion?
Full Kelly maximises long-run growth but produces severe drawdowns and assumes you know your edge exactly. Because real edges are uncertain, most traders use a fraction like half-Kelly to keep the strategy survivable.
Why is position sizing more important than entries?
Because even a genuine edge blows up if you bet too big — a normal losing streak can drop the account below recovery. Sizing controls how much each loss costs, which determines whether you survive long enough for the edge to pay off.