Trading
Position Sizing
The process of determining how much capital to allocate to a single trade or investment. Proper position sizing is crucial for risk management and long-term trading success.
Last updated: January 5, 2025
What is Position Sizing?
Position sizing determines how much of your capital to put into any single trade or investment. It’s one of the most important aspects of risk management—even a great trading strategy will fail with poor position sizing.
Why Position Sizing Matters
Without Proper Sizing
- One bad trade can wipe out your account
- Emotional decisions from large losses
- No room for recovery
With Proper Sizing
- Survive losing streaks
- Preserve capital for opportunities
- Trade with clear head
Common Position Sizing Methods
1. Fixed Percentage Risk
Most popular method for traders:
Position Size = (Account × Risk %) / (Entry - Stop Loss)Example:
- Account: $10,000
- Risk per trade: 2% ($200)
- Entry: $100
- Stop-loss: $90 (10% below)
- Position: $200 / $10 = 20 units ($2,000)
2. Fixed Dollar Amount
Simpler approach:
- Invest same dollar amount each trade
- Example: Always invest $500 per position
3. Kelly Criterion
Mathematical optimization:
Kelly % = (Win Rate × Average Win) - (Loss Rate × Average Loss) / Average WinRisk Percentage Guidelines
| Trader Type | Risk Per Trade |
|---|---|
| Conservative | 0.5-1% |
| Moderate | 1-2% |
| Aggressive | 2-3% |
| Maximum (not recommended) | 5% |
Position Sizing by Asset Type
| Asset | Suggested Max Position |
|---|---|
| Bitcoin | 20-40% of portfolio |
| Ethereum | 15-25% of portfolio |
| Large-cap alts | 5-15% each |
| Mid/small-cap | 1-5% each |
| Memecoins | 0.5-2% max |
Position Sizing Mistakes
Too Large
- One loss devastates account
- Can’t think clearly
- Forces early exits
Too Small
- Profits don’t compound
- Transaction fees eat returns
- Over-diversification
Adjusting Position Size
Increase size when:
- Higher confidence setups
- Lower volatility assets
- Winning streak (carefully)
Decrease size when:
- Higher volatility
- Less certain setups
- During drawdowns
- New/unfamiliar assets
Practical Tips
- Never risk more than 2% on a single trade
- Account for fees in calculations
- Use stop-losses to define risk
- Scale into positions rather than all at once
- Review and adjust regularly
Practice disciplined position sizing on exchanges like Binance and Bybit that offer advanced order types.
Ready to Start Trading?
Now that you understand position sizing, explore the best exchanges to begin your crypto journey.