Position sizing: work backwards from a loss scenario

Write down the assumptions first

The arithmetic needs an account amount, a chosen risk budget, an assumed entry and an assumed exit. The risk budget is your input to an example, not a percentage the calculator recommends. A long-share example assumes buying first and placing the exit below the entry.

Use one currency and one price unit throughout. A quote in pence is not a quote in pounds. Futures tick values, options multipliers, margin and short positions need different models and are outside the calculator on this page.

Calculate the planned price-distance loss

For a hypothetical £10,000 account and an illustrative 0.5% budget, the amount is £50. An assumed entry of £25 and exit of £24 creates a £1 distance per share. Dividing £50 by £1 gives 50 whole shares, with a purchase value of £1,250.

The calculator rounds down to whole shares and also caps the result at the cash amount entered. It assumes that all that cash is available for this example. It does not inspect existing positions, account restrictions, fees or reserved cash. A result of zero means the entered constraints do not accommodate one whole share.

Planned risk can be exceeded

If a price gaps below the assumed exit, a stop may execute at a worse level. Costs and currency changes can add to the loss. Moving a stop after entry changes the original scenario and should not silently rewrite the record of what was planned.

Several positions may depend on the same event. Adding individual planned losses does not capture every portfolio interaction, but it is a better starting record than assuming each position is isolated. Losses can exceed the amount shown by this simplified model.

Use the number to question the plan

Compare the cash committed, assumed exit distance and resulting loss together. A very tight distance can produce a large calculated quantity even when ordinary price movement could cross that distance. Changing an input to obtain a preferred quantity is different from explaining why the assumption is reasonable.

• Keep the original plan and the actual fill.
• Allow separately for costs and available cash.
• Test an adverse gap as well as the planned exit.