Position sizing: how many shares should you buy?
Ask ten new traders how they decided to buy 300 shares instead of 100, and most will say some version of "it felt right" or "that's what my margin allowed". Neither answer has anything to do with how much they could lose.
Position sizing flips the order. You first decide the rupees you are willing to lose if the trade goes wrong. Then you look at where your stop loss is. The quantity simply falls out of those two numbers. It is the least exciting part of trading and probably the most important.
The three numbers you need
- Capital: the money in your trading account that you are prepared to trade with.
- Risk per trade: the slice of that capital you accept losing on one trade. Many traders keep it at 1% to 2%.
- Distance to your stop loss: entry price minus stop loss price, per share.
Quantity = (Capital × Risk %) ÷ (Entry − Stop loss) Capital ₹2,00,000, risk 1% = ₹2,000. Entry ₹500, stop ₹480, so ₹20 risk per share. ₹2,000 ÷ ₹20 = 100 shares.
Now try your own numbers. Nothing you type leaves your phone or computer.
Position size calculator
Works for buying (stop below entry) and short selling (stop above entry). For futures, put the lot size.
"But that's 25% of my capital in one stock!"
Yes, and that's fine. This is the part that confuses most people. In the example, ₹50,000 goes into the trade (25% of capital), but the most you plan to lose is ₹2,000 (1% of capital), because you exit at ₹480. Position value tells you how much money is in the trade. Risk tells you how much can come out of your account. Only the second one decides whether you survive a bad week.
The flip side: a tight stop gives a big quantity, and a wide stop gives a small one. If your stop is ₹5 away, the same ₹2,000 allows 400 shares (₹2,00,000 of position). That's when the calculator above warns you, because the trade now needs your entire capital, and a gap down at the open can blow straight past a stop loss.
Futures and options: same idea, lots instead of shares
In F&O you can't buy 37 units. You buy whole lots. Suppose a contract has a lot of 50 units (a made-up number for the example) and your stop is 40 points away. One lot risks 50 × 40 = ₹2,000. If your limit is ₹2,000, that is one lot. If your stop needs to be 60 points away, one lot risks ₹3,000, and the honest answer is that this trade is too big for your account, so you skip it.
That last sentence is hard to accept, but it's the whole point. Position sizing will sometimes tell you "zero lots". Listening to it is what keeps one trade from becoming the loss you write about later.
Win rate and reward-to-risk, together
Size only controls how much you lose when you're wrong. Whether you come out ahead over many trades depends on two more things: how often you're right (win rate) and how big your wins are compared with your losses (reward-to-risk, written as 1:2 when you aim to make ₹2 for every ₹1 you risk).
The break-even win rate is 1 ÷ (1 + reward-to-risk), before costs. At 1:1 you need to be right 50% of the time just to stand still. At 1:2, about 33%. At 1:3, 25%.
| Reward : risk | Break-even win rate (before costs) |
|---|---|
| 0.5 : 1 | 66.7% |
| 1 : 1 | 50.0% |
| 1.5 : 1 | 40.0% |
| 2 : 1 | 33.3% |
| 3 : 1 | 25.0% |
Where do you sit on the break-even line?
Each trade risks 1 unit ("1R"). Set your win rate and your average reward-to-risk.
What position sizing cannot do
- It cannot make a weak method profitable. It only controls how fast a weak method loses.
- A stop loss is an order, not a promise. Gaps at the open, fast markets and illiquid strikes can fill you well beyond it, so real losses can be bigger than the calculator shows.
- Costs are left out here. For frequent F&O trading they are not small, so check your broker's contract note.
- Win rate and reward-to-risk from a handful of trades mean very little. They settle down only over many trades.
If you haven't seen it yet, the post on recovering from losses shows why the risk percentage you choose here matters so much.
Important: This post is for education only. It is not investment advice and not a recommendation to buy or sell any security. The numbers in the examples and tools are illustrations, not forecasts. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, enlistment as RA with Exchange and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.