Trading plan · Advanced

Position Sizing Models

A 1-minute lesson from the MarketPro academy, one of 14 in building a trading plan.

Last reviewed 15 September 2026 by the MarketPro research desk · Editorial policy

Short answer

Position sizing determines how much capital is committed to any single trade, and it has an outsized influence on long-term outcomes — even a strategy with a solid edge can be undermined by sizing that is too aggressive relative to its normal variance. A common approach is fixed fractional sizing, where a trader risks a consistent, small percentage of total capital on each trade, so that position size scales automatically with account size.

A common approach is fixed fractional sizing, where a trader risks a consistent, small percentage of total capital on each trade, so that position size scales automatically with account size. Other models size positions based on the volatility of the instrument, taking a smaller position in a highly volatile market and a larger one in a calmer one, to standardize risk across different trades.

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Fixed percentage risk: risk the same proportion of capital on every trade, recalculated as the account balance changes
Volatility-adjusted sizing: scale position size inversely to a measure of recent price volatility
Fixed unit size: trade the same number of units or contracts regardless of account size or volatility — simple, but risk as a percentage of capital can vary widely

Whatever model is used, it's worth stress-testing it against a realistic losing streak: what happens to the account after several consecutive losses at the chosen risk level? A sizing model that survives this scenario without producing panic or forced changes to the plan is far more sustainable than one that only looks reasonable during winning periods. Larger position sizes and leverage increase both potential gains and potential losses — sizing decisions should be made deliberately, not by default.

Step 6 of 10 on Build Your Trading Plan

PreviousExit Rules: Stop Loss And Take-Profit Frameworks NextRisk Management Rules At The Portfolio Level

Run the numbers while this is fresh

The arithmetic in this category has a free calculator on this site, no sign-up and nothing leaves your browser: Position size calculator, Risk of ruin calculator, Compounding calculator.

Written and reviewed by the MarketPro research desk

MarketPro is a trading-signal and trading-education app operated by Harajuku Holdings LTD (Cyprus). Our signal desk publishes and tracks every trade idea in-app, and every page here is checked against the app's live behaviour before publishing. Last reviewed 15 September 2026. How we produce signals and content · About MarketPro

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Not investment advice. Past performance is not indicative of future results.