What Is Position Sizing? Turning Risk into a Share Count

Position sizing is the step that turns a risk decision into a concrete quantity: how many shares or lots do I buy so that, if my stop is hit, I lose exactly the amount I chose to risk? It is decided before entry, from your stop distance — not from how confident you feel.

Position size = (capital × risk %) ÷ (entry price − stop price)

Why it is the most important decision

Your entry signal decides whether you win; your position size decides how much you survive. Two traders with the same setup can have wildly different outcomes purely because one risks 1% per trade and the other risks 10%. Sizing controls drawdown, risk of ruin, and how steady your R-multiples are.

A worked example

You have ₹5,00,000 and decide to risk 1% (₹5,000) on a trade. You buy at ₹200 with a stop at ₹190, so your risk per share is ₹10.

Position size = ₹5,000 ÷ ₹10 = 500 shares

If the stop is hit you lose ₹5,000 (1R), no matter the share price. Widen the stop and the same ₹5,000 risk buys fewer shares; tighten it and you can hold more — the rupee risk stays fixed.

How to use it

• Fix your risk %, vary the size — keep risk per trade constant (often 0.5–1%) and let the share count change with the stop distance.
• Size first, then enter — work out the quantity from your stop before you click buy. The position size calculator does the arithmetic for you.
• Consistency compounds — steady sizing is what lets a positive expectancy translate into steady rupees instead of a lucky-then-wiped-out equity curve.