Position size: separate money invested from money at risk
The money committed to a position and the loss estimated at a planned exit are different numbers. Write both down. Calling a $5,000 position a $100 risk without explaining the exit assumption leaves out most of the calculation.
A hypothetical calculation
Suppose the entry is $50 and a planned exit is $48. The difference is $2 per share. If a hypothetical loss budget is $100, dividing $100 by $2 gives 50 shares before costs. Buying them commits $2,500.
The $100 figure is an assumption about execution at $48. A fill at $45 would instead lose $250 before costs. The share count remains 50; the outcome changes with the actual execution.
Commission, spread and currency charges belong in the calculation. Fractional-share availability and broker order rules can also affect the usable quantity. This arithmetic is a public educational example, not a recommended risk percentage.
Look across the account
Five positions with a planned $100 loss each create a combined $500 scenario if all reach those exits. If the companies respond to the same event, treating the positions as independent can understate the exposure.
Keep quantity, value and planned-loss assumptions together in your review process. Mark figures in the instrument’s currency and in the account currency so they cannot be accidentally added together.
Before submitting an order, change the hypothetical exit to a worse price and repeat the calculation. Check whether you would still be able to meet your cash obligations. The share quantity should be decided using the account’s constraints, rather than how exciting the idea feels.