Risk and Trading Psychology · Crypto Trading Guide
Choose position size from a defined loss scenario, then check affordability and margin. Starting with maximum leverage reverses the process.
Define the planning budget
A risk budget is an amount you choose to expose to a stated loss scenario. It is not a guarantee or a universal percentage rule. Consider financial capacity, other positions and the uncertainty of execution. This lesson uses fictional numbers to show the arithmetic rather than prescribe an allocation.
Calculate quantity
Assume account equity of $8,000 and a chosen planned loss budget of $40. Proposed entry is $100 and modelled exit is $97. Allow $0.50 per unit for combined costs and adverse execution. Risk per unit is $3.50, giving $40 ÷ $3.50 = 11.428 units. If whole units are required, 11 units creates $38.50 of planned loss and $1,100 entry notional.
Recheck when conditions change
If the exit distance doubles, keeping the same quantity doubles much of the price risk. Recalculate size rather than assuming the original position still fits. If minimum order size or fees make the trade incompatible with the budget, skipping it is a valid result. For derivatives, convert units through the contract multiplier and verify margin independently.
Test beyond the stop
A stop can slip or remain unfilled, so also calculate a gap scenario and an outage scenario. At an actual exit of $90, the 11 unit example loses $110 on price alone, exceeding the $40 plan. Several positions can reach adverse exits together. Track aggregate exposure and correlated scenarios before placing another trade. A position sizing formula is useful only when its assumptions are visible and the operational process can support them.
Try it yourself
A $60 budget is divided by $2.40 risk per unit. What quantity fits, and what happens if risk per unit rises to $3?
Show the worked answer
25 units initially fit. At $3 risk per unit, the same budget fits 20 units. Neither calculation caps losses during a gap.
Further reading
Educational material. Examples and rates are hypothetical, not trade recommendations. Product terms, eligibility and risks vary by venue and jurisdiction.
