What is position sizing?
Everyone learns the 1% rule as a limit on losses. It also quietly fixes your leverage and your fee bill — and both are decided by the stop distance, not by you.
How do you calculate position size?
Size = (account × risk %) ÷ distance to stop. A $10,000 account risking 1% has a $100 budget; behind a 3% stop that is $100 ÷ 0.03 = a $3,333 position — not $100 of exposure, but $3,333 of exposure that loses $100 if the stop fires. Conviction appears nowhere in the formula. The calculator does it in three inputs.
What quantity do I type into the order box?
The formula stops at a dollar amount; the exchange asks for a quantity. Divide the position by the price, then round down. With ETH at $3,200, a $3,333 position is $3,333 ÷ $3,200 = 1.0416 ETH — and 1.0416 is not a number most venues will accept.
Every venue rounds quantity to a fixed step, and that step differs by venue and by pair; your own order box shows which one applies. Taking 0.01 ETH as the step for the arithmetic, 1.0416 rounds down to 1.04 ETH — a $3,328 position that loses $99.84 behind the same 3% stop. Round up to 1.05 and the same trade risks $100.80. Eighty cents is nothing once; the habit of rounding toward the bigger number is not, because it is the same instinct that widens stops and reaches for leverage. The budget is a ceiling, not a target.
Rounding cuts the other way on a small account. $500 risking 1% behind a 2% stop wants a $250 position; if that sits under the venue’s minimum order size, the honest options are a wider stop, a cheaper instrument, or no trade — not a bigger risk percentage chosen to clear the minimum.
Why is 1% the number professionals use?
Because losses cluster. At 1% risk a ten-loss streak — every strategy produces one eventually — digs a hole of barely 10%, needing +11% to climb out. At 10% risk the same streak needs +186% (the recovery asymmetry), and risk of ruin moves from near-zero to near-certain.
What leverage does the 1% rule actually put you in?
Divide the formula by your equity and the leverage falls out: position ÷ equity = risk % ÷ stop distance. Nothing else is in it — not the leverage slider, not the venue.
| Stop distance | Position on $10,000 at 1% risk | Position ÷ equity | Needs borrowed money? |
|---|---|---|---|
| 5.0% | $2,000 | 0.20× | No |
| 3.0% | $3,333 | 0.33× | No |
| 2.0% | $5,000 | 0.50× | No |
| 1.0% | $10,000 | 1.00× | Exactly at the line |
| 0.5% | $20,000 | 2.00× | Yes |
At any stop wider than your risk budget, the 1% rule keeps the position under your own balance — the discipline meant to cap losses also answers “how much leverage do I need?” with “none.” You cross into borrowed money only when the stop is tighter than 1%. That mirrors the leverage lesson: risk is notional × stop distance, and leverage is not in the formula.
Why do tighter stops cost more in fees, not less?
Because fees scale with the position while the risk budget stays fixed. Cancel the terms and the share of the budget lost to fees is just round-trip rate ÷ stop distance. At 0.10% taker per side (0.20% round trip, a common retail tier as of Aug 2026 — check your venue’s current schedule):
| Stop distance | Position | Round-trip fee | Share of the $100 risk budget |
|---|---|---|---|
| 5.0% | $2,000 | $4.00 | 4.0% |
| 3.0% | $3,333 | $6.67 | 6.7% |
| 2.0% | $5,000 | $10.00 | 10.0% |
| 1.0% | $10,000 | $20.00 | 20.0% |
| 0.5% | $20,000 | $40.00 | 40.0% |
The tight stop that feels safest hands 40 cents of every risk dollar to the exchange before the market does anything. The ratio is scale-free — the same on a $500 account as on a $500,000 one — so the only levers are the fee tier and the stop distance.
What if the stop does not fill at the stop price?
Then the loss is bigger than the budget — by exactly the ratio that drives the fee table above. The formula assumes the exit happens at the price you typed. Gaps, thin books and liquidation cascades break that assumption, and they break it hardest where the position is largest.
The two stop types fail in opposite directions. A stop-market order gets you out but not at a chosen price — it walks down the book until it is filled. A stop-limit holds the price but not the exit: if the market jumps past your limit, the order sits unfilled while the position keeps losing. Neither one is the safe choice. Add 0.5% of slippage to each stop distance and the same $100 budget behaves like this:
| Stop you typed | Where it actually filled | Realised loss | Against the $100 budget |
|---|---|---|---|
| 5.0% | 5.5% | $110.00 | 110% of budget |
| 3.0% | 3.5% | $116.67 | 117% of budget |
| 2.0% | 2.5% | $125.00 | 125% of budget |
| 1.0% | 1.5% | $150.00 | 150% of budget |
| 0.5% | 1.0% | $200.00 | 200% of budget |
Read that last column against the fee table and it is the same shape, because it is the same arithmetic: a fixed cost divided by the stop distance. Fees and slippage are two different bills with one denominator, and the tight stop that felt efficient is the one both of them punish. At a 0.5% stop, half a percent of slippage doubles the loss — the 1% rule quietly became a 2% rule, in exactly the market conditions where you were least able to notice.
The fix is not a cleverer stop type. It is to size against the fill you will realistically get rather than the one you type, and to accept that the same $100 has to cover price risk, fees and a bad exit — which brings the quantity down a little. It also means thin, fast markets, where slippage is worst, are exactly where this rule protects least. The slippage calculator runs your own pair and size through it.
When is the 1% rule the wrong rule?
When the positions are correlated. Five 1% trades in five coins that all follow Bitcoin is not five bets. It is one bet sized at 5%, and it loses like one. The discipline is 1% per idea, not per ticker. Ed Seykota gave this account-wide number a name — portfolio heat — and argued in print that setting it matters more than tuning your entries.
When the account is too small for the plumbing. On a $500 account 1% is $5; behind a 2% stop that is a $250 position, which may sit under the venue’s minimum order size. The usual response is to raise risk instead of lowering ambition — exactly backwards.
When you have just lost several in a row. The reflex is to size up and win it back. The trained response is the opposite — cut size below what the formula allows, not because the arithmetic changed but because you have. A position small enough to be boring is one you can still hold to the plan on; the same setup at full size is one you manage with your pulse. Discipline under a losing streak runs out faster than most people expect, and a smaller number on the screen does not need any.
When 1% is still too much. Risk of ruin depends on win rate and payoff, not a round number. A strategy winning 35% at 1.5R survives a different risk setting than one winning 55% at 1R. 1% is a sane default, not a measured answer.
FAQ
Does 1% mean 1% of my account per position? No — 1% is the planned loss if the stop hits. The position itself is usually much larger than 1% of the account.
Can I risk more when I am confident? Your confidence has no verified track record; your journal does. Some professionals scale between 0.5–2% based on measured edge — never on feeling.
What if the formula asks for a position bigger than my balance? The arithmetic is telling you the stop is too tight for the budget. A $10,000 account with a $100 budget behind a 0.1% stop asks for $100,000 — ten times equity. The honest fixes are a wider stop or a smaller idea, not more leverage.
Does slippage mean my 1% is not really 1%? Often, yes. The 1% is the loss if the stop fills where you put it. A bad fill adds slippage ÷ stop distance on top, so a 0.5% slip behind a 3% stop costs about $117 of a $100 budget — and behind a 0.5% stop it costs $200.
Sizing needs a real balance to size against
The formula works on paper. It becomes a habit when it decides an actual order, on an account where the loss would be real but small.
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