Stocks & Investing · How to use
Risk/Reward & Position Sizer
Follow the steps to enter your numbers and check the limits.
Updated 2026-10-25 · ThinkVault Tools
Get started in three steps
- 1
Step 1
Prepare your amounts, terms and applicable rates or prices.
- 2
Step 2
Open the tool, check the units and compare scenarios.
- 3
Step 3
Read the results and notes. Check official documents and sources before deciding.
Method and common questions
How does risk-based position sizing work?
Position sizing starts with the maximum dollar amount your account can afford to lose if a stop-loss is hit, then divides that risk budget by the per-share distance between your entry price and stop-loss price to determine the maximum share count.
Example: risking 1% of a $50,000 account
With a $50,000 account and a 1% risk limit ($500 max loss), entering at $100 with a stop-loss at $95 ($5 risk per share) gives a position size of $500 ÷ $5 = 100 shares ($10,000 capital used), alongside 1:2 ($110) and 1:3 ($115) reward targets.
Practical rules for stop-loss and risk sizing
- Many disciplined traders cap single-trade risk between 0.5% and 2% of total account equity.
- A very tight stop-loss can produce a share count whose total cost exceeds your account balance; the tool flags this automatically.
- Overnight gaps or low liquidity can cause execution slippage beyond your intended stop price.
FAQ
- Why does capital used exceed my account size when risk is only 1%?
- When the stop-loss is very close to the entry price (for example 0.5% away), the per-share risk is tiny, so the formula allows a large number of shares whose total purchase cost exceeds cash on hand.
- What do the 1:2 and 1:3 target prices mean?
- They show take-profit levels where potential gain per share is twice or three times your initial stop-loss distance.
Method
Amount at risk = Account size × Risk %; Position size = floor(Amount at risk ÷ |Entry price − Stop-loss price|). Board lots vary by security; verify the actual lot. 1 means whole shares; no ticker-based guess is made.
Last checked: 2026-08-21
Before you begin
Beta · Set a loss limit per trade to calculate share count and 1:2/1:3 profit targets.