Definition
Position sizing is the process of choosing the quantity or notional value of a trade based on account size, planned risk and market conditions.
Size connects the trade idea to account risk
A trader can begin with the maximum amount of account value they are prepared to lose and the distance between entry and the planned exit. A wider stop generally requires a smaller position to keep the same risk amount. Volatility, liquidity and contract specifications also affect the calculation.
Leverage changes the margin required to support the position, but it does not reduce the position exposure. Position size should therefore be measured from the full notional exposure rather than the posted margin alone.
Account controls and position sizing are different
A per-order cap can prevent one request from exceeding a configured amount. It does not automatically limit daily turnover, total open exposure or maximum loss. Those controls need separate rules when the product supports them.
What it does not mean
Position sizing chooses exposure for a trade. It is not the same as leverage, margin, a per-order cap or a guarantee that losses stop at the planned amount.
Where this term fits
Questions about position sizing
- Is position size the same as margin?
- No. Position size is the market exposure. Margin is the capital assigned or required to support that exposure.
- Does a per-order cap limit total account exposure?
- Not by itself. Several orders can each remain below the cap while their combined exposure becomes much larger.
- Why does stop distance affect position size?
- A wider distance creates a larger loss per unit if the stop fills, so fewer units are needed to keep the same planned risk.
See these concepts in context
Review the Fensory MCP connection, tools and account controls.