Trading foundations · 4 min read · Free lesson
Position sizing: budget to quantity
Work through a simple share example, then see why contract details matter.
At a glance
Practice loss budget
$120
Entry $50 · stop $47
$3 per share
$120 ÷ $3
40 shares before costs
Illustrative example · Hypothetical amounts in one currency
Translate the budget into units
For a simple long share position, planned price risk per share is entry minus stop. Divide the chosen monetary budget by that distance to estimate quantity. Here, a hypothetical $120 budget divided by $3 gives 40 shares. This assumes a fill at the stop and excludes costs; it is not a suggested trade.
A wider stop changes the quantity
Using the same $120 practice budget, a $6 distance allows 20 shares before costs. Keeping 40 shares would instead double the planned price risk to $240. Changing a stop requires reconsidering quantity; moving it closer solely to fit a larger position changes the trade’s exit condition.
Use the instrument’s actual units
For futures, CFDs or forex, price distance alone is insufficient. Check tick or point value, contract size, minimum quantity and currency conversion. Allow for applicable costs and possible slippage, and round quantity down to valid increments. If the minimum size exceeds the budget, that setup cannot fit that budget.
Quick check