Tool 06 · 9 fields

Position Size Calculator

Position sizing is the part of investing you fully control. You cannot make a stock go up. You can decide, exactly and in advance, how much a wrong answer costs you.

The formula

Risk budget = Portfolio value x Risk percentRisk per share = Entry price - Exit priceShares = Risk budget / Risk per sharePosition cost = Shares x Entry price

Worked example

Portfolio value: $50,000
Risk percent per position (chosen in advance): 1 percent
Risk budget: $500
Entry price: $40.00
Exit if wrong: $35.00
Risk per share: $5.00
Shares to buy: 100
Position cost: $4,000, which is 8 percent of the portfolio

Notice what happened. Risking 1 percent of the portfolio produced a position worth 8 percent of it. The two numbers are not the same thing and confusing them is the most common sizing error there is. Position size is how much you own. Risk is how much you lose if you are wrong.

Your calculation

Step

Portfolio value

Risk percent per position (enter 1 for 1 percent)

Risk budget (portfolio x percent)

Entry price

Exit if wrong

Risk per share (entry - exit)

Shares to buy (budget / risk per share)

Position cost (shares x entry)

Position as percent of portfolio

Three things this calculation does not account for

Gaps. A stock can open below your exit price. The loss can exceed the plan, particularly around earnings.
Correlation. Ten positions risking 1 percent each is not 1 percent of risk if all ten fall together.
Costs and taxes. Commissions, spreads, and tax treatment all reduce the realized result.

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