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The fixed-percentage risk method, and the math that matters more than the entry
Published by The Retail Trader · AUG 09, 2026 · Features
Two traders take exactly the same trade — the same stock, the same entry, the same stop. A year later one is in profit and the other has emptied their account. The difference was not in the entry. The difference was in the size.
Most people decide size by how 'confident' they are about the trade. This is the worst method, because confidence is highest at the time when the market has already run a long way.
The better method is the opposite: first decide how much you can afford to lose if you are wrong, then work out the size from that.
On every trade, put a fixed small portion of your total capital at risk. Many people keep it at 1% or less. Now the size calculation comes out by itself.
The formula is one line — size = (capital × risk %) ÷ (difference between entry and stop):
• Capital ₹5,00,000, risk 1% — meaning no more than ₹5,000 should be lost on one trade.
• Entry ₹200 and stop ₹190 — meaning risk per share is ₹10.
• Size = 5,000 ÷ 10 = 500 shares. That's it. No feeling, no guesswork.
• If the stop were ₹196 (risk ₹4), the size would be 1,250 shares. That is, a tight stop gives a bigger size — but a tight stop also gets hit sooner.
The loss on every trade comes out roughly equal. This means no single trade can finish you, and — even more important — no single trade is emotionally big enough to make you break your rules.
For people who take a different size on every trade, the biggest loss often comes from their biggest position. And that position is often the one they thought about the least.
A natural benefit of percentage-based sizing is that when you lose, the size automatically gets smaller, and when you win, bigger. In a falling account you slow down — which is exactly what should happen.
In options the relationship between 'stop' and 'risk' is not direct, because the premium can gap and can travel very far intraday. So there the whole premium is often treated as the risk, and the size is set accordingly.
Because of lot size, sometimes even the smallest possible lot comes out bigger than your 1%. In that situation the right answer is not to reduce the size — the right answer is to skip that trade.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics change from time to time at the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.