Position sizing maths & liquidation prices
Professionals decide how much they could lose before they decide what to buy.
Analyst · 10 min · Updated 2026-11-08
💡 Seatbelts and speed
Position sizing is a seatbelt: it decides how badly you're hurt if you crash. Leverage is pressing the accelerator harder: you get there faster when the road is clear — and a small bump becomes fatal. Most beginners remove the seatbelt and floor the accelerator at the same time.
The position-size formula
Position size (units) = (Account × risk %) ÷ (Entry − Stop)
Many risk-aware traders limit risk per idea to around 0.5–2% of their account, so a string of losses doesn't end the game.
How leverage works
With 10× leverage, $1,000 of your margin controls a $10,000 position. A 1% move in price becomes a 10% move in your margin. A move against you of about 1 ÷ leverage (minus a maintenance buffer) wipes the margin and triggers liquidation.
| Leverage | Approx. adverse move to liquidation |
|---|---|
| 2× | ~ −50% |
| 5× | ~ −20% |
| 10× | ~ −10% |
| 25× | ~ −4% |
| 100× | ~ −1% |
Bitcoin has frequently moved 5–10% within a day. That's why high leverage tends to end in liquidation, and why many regulators restrict leveraged crypto products for retail clients.
Funding and hidden costs
Perpetual futures charge or pay a periodic funding rate. In crowded markets this can quietly cost several percent a month.
🧮 Practical example: sizing a trade
Key takeaways
- Decide the loss first, then the size.
- Units = (Account × risk%) ÷ stop distance.
- Liquidation ≈ 1 ÷ leverage move.
- Funding fees add up.
Education only — not financial advice.