Determining the optimal position size for a trade is one of the most important aspects of developing a solid risk management strategy. Position sizing directly impacts how much you stand to gain or lose on any given trade. Use the right position size and you set yourself up for trading success over the long-term. Use the wrong size and you risk account-crippling losses that could knock you out of the markets.
Fortunately, there are many free online position sizing calculators that can take the guesswork out of determining appropriate trade size. These tools allow you to input key details and risk parameters in order to suggest position sizes tailored to your personal trading plan.
In this comprehensive guide, we will cover:
- What position sizing is and why it matters
- Overview of popular position sizing methods
- Key factors for determining position size
- 10 free position sizing calculators
- Tips for using calculators effectively
- Common position sizing mistakes
- Additional risk management best practices
Equipped with this knowledge and access to position sizing calculators, you’ll be able to maximize returns while minimizing risk on every trade.
What Is Position Sizing and Why Does It Matter?
Position sizing refers to the number of shares or contracts you take on a particular trade, based on your account size, risk tolerance, and other parameters. The goal is to allocate enough capital to maximize potential gains but not so much that a single losing trade wipes out your account.
Poor position sizing is one of the biggest reasons most new traders fail. Emotions take over leading to impulsively sized positions that don’t align with a written trading plan. Using predetermined position sizing takes the emotion out of trading by systematically calculating appropriate trade size based on logic and risk management rules.
Consistently applying wise position sizing gives you the best chance for trading longevity. Survivability is key so you remain in the game long enough to eventually thrive.
Overview of Position Sizing Methods and Formulas
While there are various position sizing models, most fall into one of two broad categories – fixed dollar risk or fixed percentage risk per trade.
Fixed Dollar Risk Position Sizing
This method involves risking the same set dollar amount on every trade, regardless of volatility or account size fluctuations.
For example, you might risk $100 per trade. So if initiating a trade with a $2 stop loss, you would buy/sell 50 shares ($2 loss x 50 shares = $100 maximum loss).
The fixed dollar risk formula is:
(Dollar Amount at Risk / Stop Loss) = Position Size
Fixed Percentage Risk Position Sizing
Here you risk the same percentage of your total account balance on every trade.
For example, you might risk 2% of your $10,000 account on each trade, meaning $200. If taking a trade with a $2 stop, you‘d buy/sell 100 shares ($2 loss x 100 shares = $200 maximum loss).
The fixed percentage risk formula is:
(Account Size x Risk Percentage / Stop Loss) = Position Size
In addition to these basic position sizing models there are more advanced formulations that also incorporate volatility, but the majority retail traders stick with fixed dollar or percentage risk.
Factors for Determining Position Size
While fixed risk position sizing models provide the underlying formulas, you still need to consider several factors to arrive at an appropriate trade size:
Account Size – Your position size should be proportional to your account size. Trading a $500 account requires taking smaller positions than a $100,000 account.
Risk Tolerance – How much risk can you handle without letting emotions impact decisions? Conservative traders use smaller position sizes.
Volatility – More volatile markets may call for smaller position sizes if using a fixed percentage method.
Stop Loss – The dollar amount you place your stop loss at directly impacts position size calculations.
Diversification – You may modify size if taking multiple trades to remain diversified and avoid overlapping risk.
Now let’s look at 10 free position sizing calculators to take the guesswork out of determining the optimal trade size…
10 Free Position Sizing Calculators
Rather than manually running through position sizing equations, you can simply plug your parameters into one of these handy calculators to instantly generate suggested position sizes for your trades:
1. MyFxBook Position Size Calculator
MyFxBook provides free tools for forex traders. Their position size calculator lets you input account size, currency pair, stop loss pip amount, risk %, and lot size to calculate number of units to trade.
2. Babypips Position Size Calculator
Another useful free resource for forex traders is BabyPips. Their calculator allows you to quickly generate position sizes based on account balance, currency pairs, risk amount, and leverage.
3. Trading Rush Position Size Calculator
Trading Rush provides a full suite of position sizing calculators for forex, crypto, stocks, options, and futures. Simply plug in parameters based on market and risk inputs to determinesuggested position size.
4. Wealthy Retirement Stock Position Size Calculator
In addition to retirement planning resources, Wealthy Retirement offers a handy stock position size calculator. Input buying power, stock price, stop loss, and risk to calculate shares and dollar amounts to trade.
5. MotiveWave Position Size Calculator
For traders using the MotiveWave software platform, they provide an excellent builtin position size calculator. Simply enter parameters and click calculate to determine exact share or contract size across various instrument types.
6. FXCM Position Size Calculator
Forex Capital Markets (FXCM) offers a free online position size calculator for suggested trade sizes based on account currency, leverage, stop loss pips, and percentage of account to risk.
7. TradingSim Position Size Calculator
In addition to stock market simulations, TradingSim provides a handy position size calculator to determine number of shares to trade based on dollar risk amount. Just enter quantity in dollars you want to risk.
8. Forex Risk Calculator Position Size
As the name implies, Forex Risk Calculator focuses specifically on position sizing for currency traders. Plug in account size, currency pair, risk percentage, stop loss pips, and leverage to get suggested trade size.
9. Trader Sol Position Size Calculator
Trader Sol provides an advanced free position size calculator incorporating volatility based on ATR alongside conventional inputs for percent risk and stop loss to suggest ideal position size across equities, forex and futures.
10. SMB Trainer Position Size Calculator
Mike Bellafiore’s SMB Trainer site focuses on optimal risk management for active traders. Their position size calculator lets you set fixed dollar or percentage risk parameters to generate share or contract amount to trade.
Tips for Using Position Sizing Calculators
While position sizing calculators provide suggested trade sizes, keep the following tips in mind:
- Start conservatively initially then adjust parameters as you gain more trading experience
- Use stop losses religiously on every trade
- Consider volatility – increase/decrease size if volatility changes substantially
- Re-assess inputs periodically as account size and risk tolerance changes
- Don’t place more importance on size over trade quality
The right position size can maximize any quality trade but oversizing trades with mediocre probability is still likely to lose money.
Common Position Sizing Mistakes
While calculators eliminate mental math errors, some common position sizing mistakes include:
- Oversizing due to overconfidence after a winning streak
- Revenge trading with extra large sizes after losses
- Neglecting volatility changes that require size adjustments
- Not accounting for correlations that increase portfolio risk
- Using less than 1% risk per trade on small accounts
Learning to size properly takes screen time and trade consistency. Patience and discipline are key.
Additional Risk Management Best Practices
Setting appropriate position size via calculators is imperative but not the only risk control. Also adopt these habits:
- Set stop loss and take profit orders on every trade
- Only trade instruments you have thoroughly researched
- Avoid excessive leverage from margins/options buying
- Limit position sizes across correlated markets
- Balance portfolio across sectors/industries
Apply sound risk principles like these in conjunction with proper position sizing for the highest probability of long-term trading success.
The Takeaway
Determining optimal trade size is a crucial first step for staying in the trading game long enough to achieve profit consistency. Position mistakes can quickly knock you out. Position properly however through free calculators and the odds for longevity rise substantially.
Use the 10 sizing calculators listed above to eliminate guesswork and set you up for success on every trade. Taking a calculated, rules-based approach leads to less stress plus greater growth potential over time.
Here’s to good trading!
