Position Size Calculator

How the math works

The amount you are willing to lose is the account size times the risk percentage. Each share loses the gap between the buy price and the exit price. Dividing the first by the second gives the number of shares. The calculator then caps the position at the largest share of the account you allow in one stock.

Examples

Enron and its employees. When Enron collapsed in 2001, many of its employees held most of their 401(k) savings in Enron stock, much of it through the company's own matching contributions. The shares became nearly worthless within months, and many employees lost both their jobs and their retirement savings. One position took up far too much of their accounts.

Archegos, 2021. Bill Hwang's family office Archegos Capital held very large, borrowed positions in a few stocks such as ViacomCBS. When those shares fell in March 2021, it could not meet its banks' margin calls. The banks sold the positions, and the losses to them were reported at more than $10 billion, including about $5.5 billion at Credit Suisse. Size and borrowing, not one bad pick, caused the damage.

Explain it like I'm 13

Say you have 100 marbles and you play a game where you might lose the marbles you bet. If you bet 1 marble each round, you can lose ten rounds in a row and still have 90 left to keep playing.

If you bet 50 marbles, two bad rounds and you are out. Position sizing is deciding, before you play, how many marbles you are OK losing in one round. Small bets keep you in the game long enough to learn.

Questions

What is position sizing?

Deciding how much money to put into one investment. A common rule is to size each position so that being wrong costs only a small, fixed share of the whole account.

What is a stop price?

The price at which you plan to sell if the trade goes against you. It turns "how much could I lose" into a number you choose in advance.

Does a stop guarantee the loss?

No. A stock can open far below your stop after bad news, so the real loss can be larger.