What Is Position Sizing? Meaning & Example
Definition
Position sizing is deciding how much money to put into a single trade or investment. Good sizing limits the damage any one loss can do to your account.
Related terms
The risk-reward ratio compares how much you could lose on a trade with how much you could gain. Many traders look for setups where potential reward is at least twice the risk.
Stop-Loss OrderA stop-loss is an order that closes a position automatically if price moves against you to a set level. It helps limit losses, though fast markets can cause fills worse than the stop price.
DiversificationDiversification means spreading money across different investments so one poor performer does not sink your whole portfolio. It reduces risk but cannot eliminate it.
What is Position Sizing?
Position sizing is deciding how much money to put into a single trade or investment. Good sizing limits the damage any one loss can do to your account.
Can you give an example of Position Sizing?
Risking 1% of a $10,000 account with a $2 stop means buying about 50 shares.