Fixed fractional risk
Turn a stop distance into a size that risks exactly your budget. · 6 min
Decide first
Fixed-fractional sizing risks the same share of the account on every trade, usually 0.5% to 2%. The stop sets the risk per unit, and the size follows:
With $25,000 and 1% the budget is $250. A stop $1.50 away allows 166 shares; a stop $5 away allows 50. The money at risk is the same; the position value is very different. That is the point: the stop decides the size.
Because the budget is a share of equity, sizes shrink after losses and grow after wins. That is what makes a losing streak survivable (module B4): ten losses at 1% cost 9.6%, not 10%, and never the whole account.
Position size
166 units
- Risk budget
- $250.00
- Risk per unit
- 1.50
- Actual risk
- $249.00
- Position value
- $8,300 (0.33× equity)
units = $250.00 ÷ 1.50 = 166.67 → rounded down
Worked example: sizing a short
- Account $40,000, risk 0.75%: budget $300.
- Short at 82.40, stop 84.10: risk per share 1.70.
- 300 ÷ 1.70 = 176.5, rounded down: 176 shares.
- Loss at the stop: 176 × 1.70 = $299.20. Position value 176 × 82.40 = $14,502.
Common mistake: sizing by conviction
Doubling the size on the trade you feel best about is how one trade becomes the month. Conviction is not measured, and the trades that feel best are not reliably the ones that win. Let the rule size every trade the same way; express conviction by taking the trade or not.
Check yourself
- Why does fixed-fractional sizing always round the unit count down?
- Account $100,000, risk 1.5%, long at 99.05 with a stop at 96.7. How many units?
- Account $25,000, no leverage, 1% risk. Long at 225.41 with a very tight stop 0.12 away. How many units?
Closing round
Use the risk-% sizing in the order ticket for every trade at 1%. In a bear market stops are wider: watch the sizes shrink.
Play the round in the simulator →The simulator's markets are generated, not real prices; the round practises the arithmetic, it does not predict anything.
Further reading: Tharp, Trade Your Way to Financial Freedom. The lesson teaches the idea in its own words and exercises.