How Many Shares Should I Buy? The Position Sizing Formula

"How many shares should I buy?" is the most common question new traders ask — and the most commonly answered incorrectly. The answer is not "start with 100 shares" or "buy as many as you can afford." The answer is a formula that protects your account regardless of the stock price, your account size, or market conditions.

The Formula

Shares to Buy = (Account Size x Risk %) / (Entry Price - Stop Loss Price)

This formula works for any stock at any price. It scales with your account and adjusts for each trade setup.

Examples at Different Account Sizes

Account	Risk (1%)	Stock Price	Stop Loss	Risk/Share	Shares to Buy	Position Value
$5,000	$50	$25.00	$23.00	$2.00	25	$625
$10,000	$100	$50.00	$47.00	$3.00	33	$1,650
$25,000	$250	$150.00	$142.00	$8.00	31	$4,650
$50,000	$500	$85.00	$80.00	$5.00	100	$8,500
$100,000	$1,000	$200.00	$190.00	$10.00	100	$20,000

Why "Buy 100 Shares" Is Bad Advice

Every forum post, YouTube video, and beginner guide that says "start with 100 shares" is ignoring the math entirely:

Stock	100 Shares Cost	$3 Stop Loss → Loss	Risk on $10K Account
$5 stock	$500	$300	3.0%
$25 stock	$2,500	$300	3.0%
$100 stock	$10,000	$300	3.0%
$500 stock	$50,000	$300	3.0% (but you need $50K just for the position)

The dollar exposure and position value are wildly different. Buying 100 shares of a $5 stock versus 100 shares of a $500 stock are not comparable trades. The formula adjusts the share count so your risk stays the same, regardless of the stock price.

Position Sizing for Small Accounts

Small accounts ($1,000-$5,000) often cannot buy enough shares to make meaningful trades at 1% risk. Here are your options:

• Trade lower-priced stocks: $5-$20 stocks allow more shares per position with smaller accounts
• Accept slightly higher risk: Some small account traders use 2% risk to make positions viable. This is a conscious tradeoff
• Use tighter stop losses: A smaller stop loss distance means more shares at the same risk level. But do not place stops so tight that normal price fluctuation triggers them
• Trade fractional shares: Some brokers allow fractional shares, letting you buy exactly the right dollar amount

What Happens When You Ignore Position Sizing

Trader A and Trader B both have $20,000 accounts and find the same trade setup: stock at $80, stop loss at $75.

• Trader A (no sizing): "I will buy 200 shares because it is a nice round number." Position = $16,000 (80% of account). If stopped out: $1,000 loss = 5% of account.
• Trader B (proper sizing): Risks 1% = $200. $200 / $5 stop distance = 40 shares. Position = $3,200 (16% of account). If stopped out: $200 loss = 1% of account.

Same trade, same stop loss. Trader A loses 5x more money. After 10 losing trades, Trader A is down $10,000 (50%). Trader B is down $2,000 (10%). Trader B recovers. Trader A starts revenge trading.

Calculate Your Shares

• Position Size Calculator — the formula in calculator form
• Stock Profit Calculator — see your profit/loss at any exit price
• Compound Interest Calculator — grow your trading account over time