Position sizing assumes your stop fills at the level you set. Real fills can slip. Overnight gaps, fast markets, and low liquidity can result in losses larger than the calculated risk.
Not a substitute for a complete risk-management plan. Past performance does not guarantee future results.
Position sizing works backwards from your risk to your share count. You decide the most you’re willing to lose on one trade, set the price where you’d admit you were wrong (your stop-loss), and the calculator tells you how many shares keep the loss inside that limit.
With a $20,000 account, risking 1% ($200) on a trade you enter at $50 with a stop at $45, your risk per share is $5. That works out to 40 shares, a $2,000 position. If the stop is hit, you lose the $200 you planned for, not a cent more.
Sizing by gut feel. Without this math it’s easy to load up on a “sure thing” and lose 10% of the account on a single idea that didn’t work out.