Position sizing.
Back-solve leverage from dollar-risk + stop distance. The right way to size a leveraged position.
Frequently Asked Questions
What is position sizing in crypto trading?
Position sizing determines how much capital to allocate to a single trade based on your risk tolerance and stop-loss distance. It ensures you never lose more than a predetermined percentage of your account on any trade. Without proper position sizing, even a winning strategy can lead to ruin through a single outsized loss.
What is the 1% rule?
The 1% rule means you never risk more than 1% of your total account on a single trade. With a $10,000 account, your maximum loss per trade would be $100 regardless of position size or leverage. This rule ensures you can survive a string of 20+ consecutive losses without catastrophic drawdown.
How does leverage affect position sizing?
Leverage doesn't change the dollar amount you risk — it changes how much margin (collateral) you need. A $5,000 position at 10x leverage only requires $500 margin, but a 2% adverse move still costs $100. The key insight: leverage changes capital efficiency, not risk (when stop-losses are used correctly).
Should I always use the same risk percentage?
Most traders use 1-2% consistently. Some reduce risk to 0.5% during volatile markets or increase to 2% for high-conviction setups. The key is never exceeding your maximum limit. Some professionals also reduce risk after a drawdown (e.g., halving risk after a 10% account decline).
What's the difference between position size and margin?
Position size is the total value of your trade. Margin is the collateral you deposit. With 10x leverage, a $10,000 position requires $1,000 margin. Your risk isn't determined by margin alone — it's determined by your position size and stop-loss distance.
How do I position size for crypto vs stocks?
The same principles apply, but crypto's higher volatility means stop-losses tend to be wider (3-10% vs 1-3% for stocks). This means position sizes should be smaller relative to account size. A 5% stop-loss on crypto with 1% risk means your position should be 20% of your account — much smaller than typical stock allocations.
Can position sizing prevent blowing up my account?
Yes — proper position sizing is the single most important factor in long-term trading survival. If you never risk more than 1% per trade, you'd need 100 consecutive losses to lose your account. Even a 50% win rate with 1:2 risk-reward is profitable when position sizing is controlled.
What is the Kelly Criterion?
The Kelly Criterion is a mathematical formula that determines the optimal bet size based on your win rate and risk-reward ratio. Formula: Kelly % = W - (1-W)/R, where W is win rate and R is reward/risk ratio. Most traders use half-Kelly (50% of the calculated amount) to reduce volatility in returns.
How Position Sizing Works
This formula ensures that no matter what your stop-loss distance is, the maximum dollar amount you lose is always the same — your predetermined risk amount.
Why Position Sizing Is the Most Important Trading Skill
The Math of Ruin
Recovery from losses requires exponentially larger gains:
Position Sizing Across Different Account Sizes
Smaller accounts result in very small position sizes. This is intentional — small accounts should trade smaller . The temptation to "make it big fast" by over-sizing positions is the #1 reason small accounts get wiped out.
Position Sizing with Leverage
A critical misconception is that leverage automatically increases risk. In reality, leverage changes capital efficiency, not inherent risk — when combined with proper position sizing and stop-losses.
Common Position Sizing Mistakes
As your account grows or shrinks, a fixed dollar risk becomes disproportionate. Always use percentages — they scale automatically.
Long BTC, long ETH, and long SOL aren't 3 independent 1% risks. During a crash, all correlate and you face 3% combined risk.
Buying "$500 worth of BTC" without calculating stop-loss distance or account risk percentage is gambling, not trading.
Keep risk percentage consistent. Let position sizes naturally grow as your account grows — that's the compound effect of proper risk management.
Related Tools & Guides
Risk Warning
Cryptocurrency prices are highly volatile and can change rapidly. The information on this site is provided for informational purposes only and does not constitute financial, investment, or trading advice.
Position size calculations are estimates only. Actual position sizing should account for exchange-specific margin requirements, fees, and your broker's rules. Not financial advice.