How many units can I buy when the maximum loss is fixed?
Position sizing starts with the loss you are prepared to model, then divides it by the loss per unit between entry and stop. It answers a quantity question; it does not say whether the stop or risk limit is appropriate.
Risk budget divided by loss per unit
Risk amount = Account size × Risk percentage ÷ 100Shares to buy = floor[Risk amount ÷ |Entry price − Stop price|]Sizing a position around a defined stop
The default scenario converts account size and risk percentage into a monetary risk budget. The distance between entry and stop then determines how many units fit inside that budget.
Illustrative inputs; currency amounts below use USD. Rates and prices are assumptions, not live quotes.
- Account size
- $10,000.00
- Risk per trade
- 1%
- Entry price
- $12.21
- Stop loss price
- $11.50
Step-by-step calculation
- Risk budget = 10,000 × 1 ÷ 100 = 100.
- Distance to stop = |12.21 − 11.5| = 0.71 per unit.
- Units = floor(100 ÷ 0.71) = 140. Position cost = 140 × 12.21 = 1,709.4. This assumes execution at the stop price.
Intermediate figures are rounded for reading. Results use the full calculation precision.
Why wider stops reduce quantity
A wider stop produces a smaller position when every other input stays fixed. A larger account or risk percentage increases the risk budget and therefore the calculated quantity.
Where actual loss can exceed the estimate
If entry and stop are equal, loss per unit is zero and a meaningful position cannot be calculated. Slippage and gaps can also make an actual loss exceed the modelled amount.
- Risk is measured from the entered price to the entered stop for every unit.
- Execution occurs at the entered prices without slippage.
- Fees, spread and overnight financing are outside the model.
Calculations related to position size
The following tools examine neighbouring parts of the same calculation without changing the inputs or assumptions used above.
References
Sources and conventions
- SEC Investor.gov: stop orders
A stop trigger does not guarantee execution at the stop price.
Quick answers
Frequently asked questions
Why is the share count rounded down?
Rounding down avoids exceeding the selected cash risk because fractional shares may not be available.
Can the stop be above the entry price?
Yes. The calculation uses the absolute difference between the two prices.
Does this include slippage or commissions?
No. Those costs can increase the actual loss beyond the displayed risk amount.
Calculation method and limitations · Report an error
Educational content only. This guide is not financial advice.