The position sizing formula is shares = (account size × risk %) ÷ (entry price − stop price), rounded down. Take a hypothetical US$50,000 account risking 1%, or $500, on $TSLA at its October 16, 2026 close of $354.72, with a stop two ATRs lower at $331.02. That is $500 ÷ $23.70 = 21.10, so 21 shares. The stop sets the size. Not conviction, not the share price, not a hunch.
That last point is the one traders skip. Below: the formula, a table built from real October 16 stop distances, and the four places it breaks in practice: the cap, rounding, gaps and currency.
The formula, piece by piece
- Account size: current equity, not the amount you would like to deploy.
- Risk %: the slice of the account you accept losing if the stop is hit. Common settings are 0.5%, 1% and 2%.
- Entry minus stop: the risk per share. This is where volatility enters the math.
Dollar risk = account × risk %. Shares = dollar risk ÷ risk per share. Position value = shares × entry. Notice what is missing: nothing in the formula says how big the position should be in dollars. Position value is an output, not an input.
For the stops below we used 2× ATR(14) under the October 16, 2026 close. ATR is Wilder's average true range, computed here from Financial Modeling Prep end-of-day data (the full method is in our ATR trailing stop explainer). Any stop works in the formula. What matters is that the chart sets the stop before you set the share count.
Worked table: October 16, 2026 closes, 2× ATR stops
Hypothetical accounts: US$50,000 for the US names and C$50,000 (think a TFSA-style account; this is not tax advice) for the TSX names, each bought in its own currency. Shares are rounded down. Commissions are ignored.
| Ticker | Close | 2× ATR stop | Risk/share | Shares at 0.5% | Shares at 1% | Shares at 2% | Value at 1% (% of account) |
|---|---|---|---|---|---|---|---|
| $SPY | 763.25 | 749.24 | 14.01 | 17 | 35 | 71 | $26,714 (53.4%) |
| $NVDA | 214.13 | 202.19 | 11.94 | 20 | 41 | 83 | $8,779 (17.6%) |
| $TSLA | 354.72 | 331.02 | 23.70 | 10 | 21 | 42 | $7,449 (14.9%) |
| $JPM | 339.72 | 326.67 | 13.05 | 19 | 38 | 76 | $12,909 (25.8%) |
| $CNQ.TO | 76.10 | 72.51 | 3.59 | 69 | 139 | 278 | C$10,578 (21.2%) |
| $SHOP.TO | 239.71 | 218.09 | 21.62 | 11 | 23 | 46 | C$5,513 (11.0%) |
| $XIU.TO | 54.17 | 52.94 | 1.23 | 203 | 406 | 813 | C$21,993 (44.0%) |
Read down the 1% column. Every row loses roughly the same $500 if its stop is hit (a few dollars less after rounding). Yet position sizes span a factor of four. $XIU.TO takes 44.0% of the account; $SHOP.TO takes 11.0%. The reason is ATR as a share of price on October 16: 1.14% for the TSX 60 ETF versus 4.51% for Shopify. The volatile name gets fewer shares, automatically.
Same story south of the border. $SPY, with ATR at 0.92% of price, takes 53.4% of the account at 1% risk. $TSLA, at 3.34%, takes 14.9%. Put equal dollar amounts into both with these stops and the Tesla position carries about 3.6 times the stop-loss risk. Equal-dollar sizing feels balanced. It is not.
One honest caveat: ATR is backward-looking. It measures the last 14 sessions, not the next 14.
Fixed-fractional vs fixed-dollar sizing
Fixed-fractional risks a set percentage of current equity, so dollar risk shrinks after losses and grows after wins. Fixed-dollar risks the same amount, say $500, on every trade regardless of the balance.
The gap is small early and widens later. After 10 straight losses, a fixed $500 risk leaves $45,000. A 1% fixed-fractional rule leaves $45,219, because each loss is 1% of a smaller number. Fixed-fractional brakes on its own in a drawdown. Fixed-dollar is simpler and keeps the per-trade number constant, but it risks a growing share of a shrinking account: after 20 losses, $500 is 1.25% of the remaining $40,000.
The drawdown math at 1% vs 2%
Pure arithmetic, no market data. After n consecutive losses at fixed-fractional risk, the account is 0.99^n of its start at 1%, or 0.98^n at 2%. Starting from a hypothetical $50,000:
| Losses in a row | 1% risk: account | Drawdown | Gain to recover | 2% risk: account | Drawdown | Gain to recover |
|---|---|---|---|---|---|---|
| 3 | $48,515 | 2.97% | 3.06% | $47,060 | 5.88% | 6.25% |
| 5 | $47,550 | 4.90% | 5.15% | $45,196 | 9.61% | 10.63% |
| 10 | $45,219 | 9.56% | 10.57% | $40,854 | 18.29% | 22.39% |
| 20 | $40,895 | 18.21% | 22.26% | $33,380 | 33.24% | 49.79% |
Doubling the risk roughly doubles the drawdown and more than doubles the climb back. Ten losses cost 9.56% at 1% and 18.29% at 2%; the gain needed to recover is 10.57% versus 22.39%. After 20 losses, the 2% trader needs a 49.79% gain just to get back to $50,000. Losing streaks are not exotic in any strategy with a meaningful loss rate, so this table is the real argument for small risk numbers.
When the formula wants more than the account: the cap
Tight stops on low-volatility names produce huge share counts. At 2% risk the formula says 71 $SPY shares: $54,191, or 108.4% of a $50,000 account. That is margin, not a plan. $XIU.TO at 2% asks for 88.1% of the C$50,000 account.
The fix is a second rule applied after the formula: a maximum position size, and you take whichever number is smaller. With a hypothetical 25% cap, SPY is limited to 16 shares ($12,212, or 24.4% of the account), and the actual risk falls to 16 × $14.01 = $224.16, or 0.45%. The cap wins and part of the risk budget goes unused. That is the point. No single position should be able to sink the account if the stop fails.
Rounding, gaps and currency
Round down, always
21.10 TSLA shares becomes 21, not 22. Rounding up breaches the risk budget, and on small accounts with expensive shares the breach is not trivial. At 0.5% risk the formula gives 10.55 TSLA shares; 11 shares would risk $260.70 against a $250 budget.
Gaps blow through stops
When the stop price is reached, a stop order becomes a market order, as the SEC explains. The fill is whatever the market offers at that moment. Hypothetical: 21 TSLA shares bought at $354.72 with a $331.02 stop plan to lose $497.70. If the stock opened at $310 after overnight news, the loss near that price would be 21 × $44.72 = $939.12, or 1.88% of the account. Realized risk ran 1.89 times plan. Treat the 1% as the planned loss, not the maximum loss, especially across earnings dates.
Currency: convert before you size
A C$50,000 account buying US-listed $NVDA has to express risk in one currency. The Bank of Canada daily average rate for October 16, 2026 was 1.4154 Canadian dollars per US dollar. The 1% budget of C$500 equals US$353.26. Divide by the US$11.94 risk per share and you get 29.59, so 29 shares, costing about US$6,210 (C$8,789, or 17.6% of the account). Plug C$500 straight into the formula without converting and it says 41 shares, which would risk about C$693 instead of C$500. Your broker's conversion rate will differ from the Bank of Canada average, and the exchange rate keeps moving while the position is open.
Common mistakes
- Sizing first, stop second. Moving the stop to fit a share count you already wanted defeats the formula.
- Using the starting balance after a drawdown. That quietly turns fixed-fractional into fixed-dollar.
- No position cap. Tight stops on quiet ETFs can ask for more than the account.
- Ignoring correlation. Five 1% positions in five Canadian banks can behave more like one 5% bet than five independent ones.
- Mixing currencies. C$ budgets divided by US$ stop distances overstate the share count.
- Treating the stop as a sure exit. Gaps make realized losses bigger than planned.
For more rules-based breakdowns, see the Analysis section or the latest on the Traders On Trend homepage.
Bull/Bear Verdict
Bull Case: Where it helps: the formula makes every trade cost the same planned amount, whatever the stock. On October 16, 2026 data it gave $SHOP.TO a position worth 11.0% of the account against 44.0% for $XIU.TO, purely from volatility, and the 0.99^n math keeps a 10-loss streak under a 10% drawdown.
Bear Case: Where it misleads: the formula is only as good as the stop. Gaps can nearly double the realized loss, ATR describes the past, quiet names can demand more than the whole account without a cap, and five correlated 1% bets are not 1% risk.
FAQ
What is the position sizing formula?
Shares = (account size × risk %) ÷ (entry − stop), rounded down. With a hypothetical US$50,000 account, 1% risk and $JPM's October 16, 2026 close of $339.72 with a $326.67 stop, that is $500 ÷ $13.05 = 38 shares.
Is 1% or 2% risk per trade better?
It is a tradeoff, not a rule. The arithmetic: 10 straight losses cost 9.56% of the account at 1% and 18.29% at 2%. Higher risk per trade compounds faster when trades work and digs a deeper hole when they don't.
How do I size a US stock in a Canadian-dollar account?
Convert the dollar risk or the stop distance into one currency first. At the Bank of Canada's 1.4154 rate for October 16, 2026, C$500 of risk was US$353.26, which bought 29 $NVDA shares against a US$11.94 stop distance, not 41.
What stop should go into the formula?
Any stop defined before entry: a chart level, a moving average or a volatility multiple such as 2× ATR. The formula does not judge the stop; it only converts its distance into a share count.