Five sizing methodologies, ranked by survivability.
Fixed fractional dominates retail position sizing because it survives bad streaks. The alternatives have specific strengths but no general-purpose substitute.
1. Fixed fractional (recommended for most retail traders)
Risk a fixed percentage of account capital per trade. The percentage is small (1–2 % for active traders, 0.25–0.5 % for systematic strategies with many simultaneous positions). Mechanism: shares = (account × risk_pct) / per_share_risk.
Pros. Bounded loss per trade. Scales with capital. Survivable through extended drawdowns. The methodology used by the calculator on this site.
Cons. Requires a defined stop-loss to compute per-share risk. Marginally suboptimal for strategies with very high or very low expectancy.
2. Fixed dollar
Risk the same dollar amount per trade regardless of account size. Common at the very early stages of trading when account size is small and the percentage approach produces share counts too small to trade economically (with retail commission and minimum-order constraints).
Pros. Simple to apply. Avoids the share-count rounding problem with very small accounts.
Cons. Does not scale with capital. As the account grows, the fixed-dollar risk shrinks as a percentage. As the account drawdowns, the fixed-dollar risk grows as a percentage — the opposite of what you want.
3. Equal weight
Allocate equal capital to each position. position_value = account / number_of_positions. Common in long-only equity portfolios where the strategy holds all names simultaneously.
Pros. Simple. Diversified by construction.
Cons. Ignores per-stock volatility — a high-vol biotech and a low-vol utility get the same dollar allocation, contributing very different amounts of portfolio risk. The volatility-parity alternative addresses this.
4. Kelly criterion
The mathematically-optimal sizing if you know your edge precisely. f* = p / a − (1 − p) / b where p is win probability, a is loss size, b is win size. Kelly maximises long-run geometric growth of capital.
Pros. Provably optimal under known-distribution assumptions.
Cons. Requires accurate estimates of win probability and win/loss size. Real strategies do not have known distributions. Kelly is brutal when the edge estimate is wrong — full Kelly with overestimated edge produces a 50 %+ probability of being down 50 % at some point. Practical implementations use “half-Kelly” or “quarter-Kelly” (sizing at 50 % or 25 % of the Kelly-optimal fraction) to provide a margin of safety against estimation error.
5. Volatility parity
Size each position so that each contributes equal volatility to the portfolio. weight_i = (1 / vol_i) / sum(1 / vol_j). Used in institutional risk-parity portfolios.
Pros. Equalises portfolio risk contribution across positions. Avoids the equal-weight problem of high-vol names dominating realised P&L.
Cons. Requires reliable volatility estimates (typically 30-day or 60-day realised). Can lead to high allocations to currently-low-volatility assets that subsequently spike (the “risk parity blowup” experienced in March 2020).
How they compare on the same trade idea
$50,000 account, considering a long position in XYZ at $145.50, stop $138, target $168:
| Method | Sizing rule | Shares | Position value | Risk if stopped |
|---|---|---|---|---|
| Fixed fractional 1% | $500 risk / $7.50 per-share risk | 66 | $9,603 | $495 |
| Fixed dollar $300 | $300 risk / $7.50 | 40 | $5,820 | $300 |
| Equal weight (5 positions) | $10,000 / $145.50 | 68 | $9,894 | $510 |
| Half-Kelly (assumed 55% win, 1.5R) | ~5.8% of account | 19 | $2,765 | $143 |
| Volatility parity | Depends on portfolio | varies | varies | varies |
What the calculator implements
The main calculator implements fixed fractional. It is the methodology with the longest track record of preserving capital across regime shifts and the methodology recommended for retail traders by every reputable trading-education source I've encountered. The other methodologies are more specialised; for those, custom sizing logic is required.