Fixed Dollar vs Percent of Equity: Position Sizing Basics
Understand fixed dollar vs percent-of-equity position sizing with clear examples, pros/cons, and simple steps to test, choose, and apply a method safely.
Position sizing in plain English
Position sizing is deciding how big a trade should be. Your goal is to keep each loss small enough that a single trade does not damage your account. In this article we compare two simple sizing methods: fixed dollar risk and percent of equity risk.
Equity means your current account balance. Risk per trade is the amount you are willing to lose if your stop-loss (a predefined exit price that caps loss) is hit. Both methods below use that idea, but they scale differently as your equity changes.
Fixed dollar risk: the steady choice
With fixed dollar risk, you choose one dollar amount to risk on every trade, regardless of account size. Example: risk $100 on each trade. If you plan to enter at $50 and set a stop at $48, the risk per share is $2. To risk $100, you would take 50 shares. If your stop is hit, you lose about $100 (plus fees/slippage).
- Pros: Simple, predictable, easy to stick with. Good for learning discipline.
- Cons: It does not scale with your equity. After gains, you may be under-risking; after losses, you may be over-risking relative to your smaller account.
Who it suits: traders who want consistency and low complexity, or those practicing a new setup and focusing on execution quality over growth rate.
Percent of equity risk: the adaptive choice
With percent of equity, you risk a fixed percentage of your current account on each trade. Example: risk 1% per trade. On a $10,000 account, 1% is $100. If equity grows to $12,000, 1% becomes $120; if equity declines to $8,000, 1% becomes $80. Position size adapts automatically.
- Pros: Scales up after gains and down after losses, helping control drawdowns. Aligns risk with account size.
- Cons: Requires recalculation as equity changes. Can feel slower when starting small, and faster during winning streaks.
Who it suits: traders aiming for steady growth while keeping risk proportional to the account through market cycles.
Which should you use? A quick comparison and next steps
| Aspect | Fixed Dollar | Percent of Equity |
|---|---|---|
| Scales with account | No | Yes |
| Drawdown control | Less adaptive | More adaptive |
| Complexity | Low | Medium |
| Best for | Practice, consistency | Long-term growth discipline |
How to implement in practice
- Pick your method: fixed dollar (e.g., $50–$150 per trade) or percent of equity (e.g., 0.5%–2% per trade).
- Define your stop-loss before sizing. Your share/contract count should make the potential loss equal your chosen risk.
- Log results by setup, market, and time of day. Adjust only after a reasonable sample size.
- Stress test during streaks. Confirm your method keeps losses tolerable in a series of losing trades.
- Practice without real money to build repetition and confidence. See /articles/practice-trading-without-risk/ for a simple approach.
For beginners, either method can work. If you value simplicity, start with fixed dollar risk. If you want risk to adapt with your account, use percent of equity. Consistency matters more than picking the “perfect” number. Revisit your risk level as your edge and discipline improve.
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