Position Sizing
Deciding how much to trade from the distance to your stop and the amount you are willing to lose — not from conviction or available margin.
Also called: lot sizing · risk per trade · position size calculator · 1% rule
What it means
Position sizing converts a risk budget into a quantity. Fix the amount you are prepared to lose on the trade, measure the distance from entry to stop, and the size follows. Conviction does not enter the calculation, because conviction is not measurable and is highest precisely when it is least reliable.
A volatility-aware stop distance — commonly a multiple of ATR — makes size adapt to conditions automatically: wider stops in volatile conditions produce smaller positions for the same rupee risk.
For option buyers there is a natural bound: the most a long option can lose is the premium paid, so the stop-derived risk should be capped at premium times quantity. Sizing as though a long option can lose more than its premium overstates risk and undersizes the position.
How OptionLab Pro’s engine uses it
In the live engine
Our suggestion is risk% x equity / (stop distance x delta x lot size), with an at-the-money delta approximation of 0.5 and the per-lot loss capped at premium x lot size. The default risk is 1%. ATR comes from a single shared source that also drives the expected-move overlay, so the sizing figure and the band on the chart cannot disagree. Below one lot there is a bounded floor: if a single lot risks 3% or less of equity it sizes to 1, and above that it refuses rather than suggesting a size the account cannot carry.
go/internal/risk/ (Size, DefaultSizing) · frontend/src/lib/forwardSizing.jsThe common mistake
Where traders get this wrong
Sizing from available margin. Margin tells you the largest position you can open, which is unrelated to the largest you should — and the two diverge most dangerously when the stop is tight, because that is exactly when the margin figure permits the most lots.
Go deeper
There is a full lesson on this in the Academy, with an interactive widget and a Hindi translation.
Related terms
Educational and analytical content only. OptionLab Pro is not a SEBI-registered investment adviser or research analyst and does not give buy or sell recommendations. Derivatives trading carries a high risk of loss.