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Position Size (Kelly / Fixed %)

Optimal position size by Kelly or fixed-risk

What is Position Size (Kelly / Fixed %)?

Position sizing determines how much capital to allocate to a single trade or investment to manage risk appropriately. The Kelly Criterion is the mathematically optimal bet size that maximises long-run portfolio growth given your edge and odds. Fixed-percentage risk sizing (risking 1-2% of portfolio per trade) is the most common practical approach. Over-sizing is the primary cause of ruin even for traders with positive expected value: a string of losses can permanently impair capital if too much is risked per trade. Kelly sizing is theoretically optimal but volatile in practice; half-Kelly (0.5 × Kelly) is often recommended as a compromise between growth and drawdown reduction.

Formula

Kelly % = (Win Rate × Avg Win − Loss Rate × Avg Loss) / Avg Win

Fixed % = (Risk Per Trade $) / (Entry − Stop Loss)

Shares = (Portfolio × Risk %) / (Entry Price − Stop Price)

Win Rate = historical winning trade percentage

Avg Win / Avg Loss = average profit or loss per trade

Risk % = typically 1-2% of portfolio per trade

Calculator

How to Use

  1. 1
    Choose sizing method: Kelly for probability-based sizing; Fixed-% for stop-loss-based position sizing.
  2. 2
    Fixed-% method: Decide your max risk per trade (e.g. 1% of $100k = $1,000). Divide by the distance to stop loss (in dollars per share).
  3. 3
    Kelly method: Enter your historical win rate, average win, and average loss. The calculator outputs the optimal % of capital to deploy.
  4. 4
    Apply half-Kelly: Multiply Kelly % by 0.5 for a more conservative, drawdown-resistant position size.

Worked Example

Example: Fixed %, entry $50, stop $47, 1% risk on $100k portfolio

Portfolio

$100,000

Risk %

1%

Entry

$50

Stop

$47

Max risk = $100,000 × 1% = $1,000. Risk per share = $50 − $47 = $3. Shares = $1,000 / $3 = 333 shares. Position size = 333 × $50 = $16,650 (16.7% of portfolio). If stop is hit, maximum loss = $1,000 = 1% of portfolio, consistent with the risk rule regardless of individual stock volatility.