Position Sizing

What this unit covers

Learn to size a single trade by how far away its stop-loss is: position size is the amount you are willing to risk divided by the gap between entry and stop-loss.

By the end you will be able to

• Calculate shares to buy using capital risked divided by entry price minus stop-loss price.
• Distinguish capital deployed from capital at risk in a single trade.
• Explain why the gap to the stop-loss, not the entry price alone, sets position size.

How it starts: The Same Trade, Two Risks

1. You and another trader each buy the same stock at 500 rupees.
2. Both of you set a stop-loss at 480 rupees, 20 rupees below entry.
3. Both stop-losses are hit, so why does one loss look far bigger?

Words you will meet

Position Size

The number of shares you hold in a single trade.

Stop-Loss

A set price at which you exit a trade to limit further loss.

Capital Deployed

The total rupees spent to buy the shares in a trade.

Capital at Risk

The rupees actually lost if the stop-loss price is hit.

In this module: Risk Management

1. Stop Loss
2. Position Sizing (this unit)
3. Risk–Reward
4. Trade Management