# Calculating Position size

Hi,

I have a problem calculating the position size.

Account size = 1,00,000
Risk = 1%
Amount in risk = 1,000

Shorting the stock , stock price is Rupeese 1029:

Entry = 1029
Stop loss at = 1032

The difference between the Entry and Stop loss is 3 rupeese.

1000/3 = 333.33
Now if I multiply that with the price of the stock it gives me .

333 * 1029 = 3,43,000

WHICH EXCEEDS MY TOTAL CAPITAL… !!

how is this possible and how can I calculate my position size in this case where my stop loss is very small ?

You should calculate like that…
Determining your position size depends on your capital, not on how much money you are ready to lose (loss to be precise) .
Entry price : 1029
1,00,000/1029= 97.1
So maximum number of shares you can buy is 97 .
No matter how much loss you can bear , maximum quantity is 97
Lets say your loss you can afford is 10,000 . Quantity you can buy is 97 .
So no matter no matter how much loss you can bear 1,000 or 10,000 or even 100 , maximum quantity you can buy is 97 ( If leverage is not considered )

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This calculation is right. I think you should take fixed risk, capital needed may sometimes be more, it need not always be 1percent of capital. If stoploss is small, u can use leverage for taking more qty.

But in intraday U can get a leverage upto 4x…That means capital needed to trade this stock is only around 85k (Applies only for intraday)

Its a tricky one , if your limitation is your capital , then @Adityadd calculation is correct for optimum position size but you will not have control on the amount of sop loss , it vary &depends on the stock entry price , In case you are specific about stop loss , your calculation is correct and you will not have control on total capital needed to enter that particular trade , so mainly it depends on your Capital + your risk appetite

@TIMEFRAME you are right .

Yes he did correct calculation . He defined loss and found margin and quantity . But I defined margin and found quantity . If you ask me which is correct, both are . But what I did is right ( in this case ) because he have limited capital . Here capital is prominent than loss . So margin is the main defined term here because you are restricted by that capital . So in this case mine is correct . But if there is no capital limit then @Karthik_Prasad calculation is right . If you still ask me I want to take 1K risk then with 97 quantity then your stop loss would be 10 to 11 points (10.3)

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If this calculation of positions is right… Then where is the concept of risk management is applied…
According to your calculations the position sizing is with in the capital we have but… But there is no limitations in loss it may be high or low…
But we have to always apply risk management that is risking 1%-2%…

@MightyBulls Risk management can be done through my calculation also . According to his calculation quantity you can buy is 333 which is totally wrong because you can buy only 97 . The only thing is if your risk is 1% or 10% or 0.001% or anything the quantity you can buy is 97 . Risk management defines at what price you have to exit , but not where to enter and quantity to buy or sell .
Quantity you can buy is capital / entry price = 1,00,000/1029 = 97
Entry : 1029
Quantity : 97
Your risk is 1000 . Quantity is 97 . So 1000/97 = 10.3
Stop loss : 1039.3 (Because of short position as mentioned in question)
Loss in rupees : 999.1
So as you said loss is only 1% of capital . So my calculation is right .
So your risk can be 10.3 points that is 1039.3
What @Karthik_Prasad interpreted in his question is wrong . 333 is not the quantity . 333 is the loss in points he can afford if he buys/sells 3 quantity of a stock .
So my calculation is right

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Bruh!! , have you heard of something called leverage.

you should look it up.

Here is a bit different approach to calculating position size. Below method is applicable for Holding stocks and not for intraday. Will try to substantiate intraday at the end.

Equal risk-weighted method:
What we try to do here is allocate the amount based on the stock volatility. Higher the volatility lower the allocation and lower the volatility higher the allocation. The idea is each stock in a portfolio should have the same impact on the portfolio P&L.

No. of shares = Portfolio Amount * Risk factor / Volatility

Risk Factor = % basis point impact on a portfolio. Say, each stock should have a 10 basis point impact on the portfolio. Which give the risk factor of 0.001 or 0.1%

Volatility = One can either use standard deviation or ATR to get the volatility of the stock.

Here is the allocation for reliance and idea would come up if you had 100,000 as capital and 0.2% risk factor.

Reliance is quite stable compared to Idea and hence higher allocation.

You can check this link to get position size on the above method - Inuvest.

For intraday, you can multiply the above to the leverage you would like to use.

Alternatively, since the margin offered by brokers takes into account the volatility you can use that to get an allocation. Say your capital is Rs.100,000 and want to have 10 stocks in the portfolio, hence you would allocate max of Rs.10,000 to each.

No. of shares = 10000/margin amount of stock.

Margin offered on Reliance is 10X and no margin on Idea. Hence, the total exposure in reliance would be 98,314 while in idea it would be 9,998 only.

Hope you are able to get a different perspective.

Thanks a lot i understand a little bit…
But position sizing done by you is for delivery or intraday???
And calculations where we are defining the risk first… and where our position sizing is greater than account capital… is for intraday… right?

I have created the position size calculator sheet for my own use which I am now sharing with the community.

This also take into the account the leverage provided by the broker.

How to calculate the position sizing:

1. D13 => Update the leverage provided by the broker. (eg 1 means 1x, 2 means 2x and so on)
2. B3 => Specify available capital for this trade
3. C3 => Specify Risk per Trade in percentage ie .5, 1 or 2 for .5%, 1%, 2% respectively
4. B7 => Price at which you want to trade
5. C7 => Specify Stop Loss (This value you arrive based on technical analysis or whatever study to do)
6. D7 => Risk to Reward Ratio. How much reward you want based on the risk you take. Refer the comment in D6 for the example.
7. F16 => Specify brokerage/taxes etc

You will get position size in the cell B10. This is the qty that you should trade using the Stop Loss Price and Target price in cell E7 and F7.

System also calculate the additional details:

1. Risk per trade in Rs
2. Profit per trade in Rs
3. and other details.

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@MightyBulls Its not for intraday . Its for delivery or NRML