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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
Determining how much money to allocate to each trade based on risk.
Why It Matters
Position sizing protects you from yourself. If you bet 50% on one option and it goes to zero, you've lost half your account. If you bet 2% and it goes to zero, you lose 2% and live to trade another day. The goal isn't to get rich quick - it's to get rich eventually without blowing up.
Key Points
- Common rule: risk only 1-2% of total portfolio per trade
- Size positions based on your stop loss, not how much you want to make
- Reduce position size when on a losing streak; emotions are your enemy
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Common Questions
Determining how much money to allocate to each trade based on risk. Position sizing protects you from yourself. If you bet 50% on one option and it goes to zero, you've lost half your account.
Position sizing protects you from yourself. If you bet 50% on one option and it goes to zero, you've lost half your account. If you bet 2% and it goes to zero, you lose 2% and live to trade another day. The goal isn't to get rich quick - it's to get rich eventually without blowing up.
Common rule: risk only 1-2% of total portfolio per trade
Size positions based on your stop loss, not how much you want to make
Reduce position size when on a losing streak; emotions are your enemy