Crypto course · Section 4: Risk Management and Records
Position Sizing and the 1% Rule: How Much Crypto to Buy per Trade
Calculate crypto position size with the 1% rule: worked examples in dollars and rupees, fees, leverage, and why small risk keeps you alive.
Intermediate6 min read·6:39 video·Lesson 13 of 26·quiz: 4 questions
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Position sizing decides how much you buy so that, if your stop-loss is hit, you lose a fixed, small slice of your account, commonly 1%. The formula is position size = (account x risk %) / distance from entry to stop. It is the single most important habit for surviving long enough to become a good trader, because it keeps any one mistake, or any losing streak, from doing serious damage.
Think in risk, not in amounts
Most beginners decide position size by feel: "I'll put $500 in this one." The problem is that $500 with a 2% stop risks $10, while $500 with a 15% stop risks $75. Your losses then depend on where you happen to place stops, not on any plan.
Professional traders flip the process:
- Decide where the trade is wrong. That is the stop.
- Decide how much of the account you will lose if it is wrong. That is the risk per trade.
- Let the formula calculate the position size.
The formula
Risk amount = Account balance x Risk %
Stop distance = (Entry - Stop) / Entry
Position size = Risk amount / Stop distance
Quantity = Position size / Entry price
Example 1 (Bitcoin, dollars): Account = $2,000. Risk 1% = $20. Entry $60,000, stop $57,600. Stop distance = 2,400 / 60,000 = 4%. Position size = 20 / 0.04 = $500. Quantity = 500 / 60,000 = 0.00833 BTC. Check: if the stop is hit, 0.00833 x 2,400 = $20. Correct.
Example 2 (Ethereum, rupees): Account = PKR 500,000. Risk 1% = PKR 5,000. ETH entry $3,000, stop $2,850, a distance of 150 / 3,000 = 5%. Position size = 5,000 / 0.05 = PKR 100,000 worth of ETH. Whatever the exchange rate, the loss at the stop is 5% of PKR 100,000 = PKR 5,000.
Example 3 (a tight stop): Same $2,000 account. An altcoin at $1.00 with a stop at $0.97, only 3% away. Position size = 20 / 0.03 = $666.67. The position is larger, but the money at risk is still $20.
Notice what the formula does: wide stops automatically produce small positions, and tight stops produce large ones. You never need to choose between "a sensible stop" and "a meaningful position".
Include fees and slippage
A stop is not a guaranteed exit price, and fees apply on both sides. A simple adjustment adds expected costs to the stop distance.
Example
In Example 1, assume 0.1% fee on entry, 0.1% on exit and 0.1% slippage on the stop. Effective distance = 4% + 0.3% = 4.3%. Position size = 20 / 0.043 = $465. That is a little smaller, so your real loss stays close to $20 even after costs.
Why 1%? The losing-streak table
Every strategy has losing streaks. Simple probability shows that a system winning 40% of its trades has about a three-in-four chance of at least one run of eight or more losses in a row somewhere in 200 trades. Here is what ten straight losses do at different risk levels, with risk measured on the current balance:
| Risk per trade | Account after 10 losses | Loss | Gain needed to recover |
|---|---|---|---|
| 1% | 90.4% | -9.6% | +10.6% |
| 2% | 81.7% | -18.3% | +22.4% |
| 5% | 59.9% | -40.1% | +67.0% |
| 10% | 34.9% | -65.1% | +186.8% |
At 1%, a bad streak is an annoying drawdown. At 10%, it nearly destroys the account, and you need almost to triple what is left just to get back to where you started. Losses and gains are not symmetric: a 50% loss needs a 100% gain to recover.
Many traders risk between 0.5% and 2% per trade. Beginners should stay at the low end until they have a tested record.
Position size and leverage
On futures, the same formula sets your position size. Leverage only decides how much margin (collateral) you must post.
Example
From Example 1, the position is $500 of BTC exposure. At 5x leverage, you post 500 / 5 = $100 margin. The stop is still 4% away and the loss at the stop is still about $20. The danger starts when traders use leverage to make the position itself bigger, for example $100 of margin at 20x = $2,000 of exposure. Then a 4% move costs $80, four times the plan. Leverage is covered in detail in Why Most Leveraged Traders Lose.
Cap your total risk
Risk per trade is only half of the rule. You also need a ceiling on everything open at once:
- Maximum open risk: for example, no more than 5% of the account at risk across all positions combined.
- Correlation: five altcoin longs each risking 1% are not five independent bets. In a market-wide drop they usually fall together, so treat them as one bigger bet, and consider a lower cap for groups of similar coins. See Crypto Portfolio Construction.
- Use the current balance. After losses, 1% is a smaller amount; after gains, a larger one. This automatically slows you down in drawdowns.
Using ATR to set the stop, then size
Combining this lesson with ATR from Moving Averages, RSI and ATR:
Example
Account $5,000, risk 1% = $50. SOL trades at $150 with a 14-day ATR of $9. Stop at 2 ATR = $18 below entry, at $132 (12% away). Position = 50 / 0.12 = $416.67, or about 2.78 SOL. A calmer coin with a 4% ATR-based stop would get a $1,250 position for the same $50 risk.
A spreadsheet you can build in five minutes
| Cell | Formula |
|---|---|
| Account | 2000 |
| Risk % | 1% |
| Entry | 60000 |
| Stop | 57600 |
| Costs % | 0.3% |
| Risk amount | = Account x Risk % |
| Stop distance | = (Entry - Stop) / Entry + Costs % |
| Position size | = Risk amount / Stop distance |
| Quantity | = Position size / Entry |
Risk
Position sizing protects you only if you actually exit at the stop. Moving the stop further away once a trade goes against you silently multiplies your risk. Decide the stop before you enter and leave it alone, except to move it in your favour.
Tip
If the calculated position is bigger than you can afford, or bigger than the coin's order book can handle without slippage, take the smaller size. Never round up.
Next, learn where to put that stop and how far the target should be in Stop-Losses and Risk:Reward.
Key takeaways
- Position size = (account x risk %) / stop distance. Decide the risk first, then let the stop set the size.
- Risking 1% per trade means ten losses in a row cost about 9.6%; risking 10% means the same streak costs about 65%.
- A wider stop means a smaller position; a tighter stop means a larger one; the money at risk stays the same.
- Leverage changes the margin you post, not the risk, if you size from the stop.
- Cap your total open risk, and count highly correlated altcoins as one bet.
Quiz: check what you learned
0/4 answeredAnswer every question to finish the lesson. Wrong answers are fine: read the explanation and try again.
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