Decide the maximum account loss first. Divide that dollar risk by the percentage distance between entry and stop. This keeps risk stable even when stop distance changes. Leverage affects margin required, not the planned loss at the stop.
Transparent formula
Risk dollars = account × risk%; position size = risk dollars ÷ stop distance%; units = position size ÷ entry price
Worked example
A
Use this sequence
- Choose a fixed account risk percentage.
- Place the stop based on market structure.
- Calculate position from stop distance.
- Add fee and slippage buffer.
Common mistakes
- Choosing leverage before position size.
- Moving the stop to fit a larger position.
- Ignoring correlated open positions.
Verify next
Frequently asked questions
Is 1% risk always correct?
No. It is a common reference, not a universal rule. Use a level appropriate to volatility, strategy and total portfolio exposure.
Does leverage increase planned loss?
If position size and stop remain fixed, planned stop loss is unchanged; leverage reduces margin and brings liquidation closer.
Should fees be included?
Yes. Reserve part of the risk budget for entry, exit and slippage, especially for small stop distances.
This page provides calculation and research frameworks, not investment, legal or tax advice.
