The short version: Decide the dollars you are willing to lose first. The size comes out of that. Never the other way round.
The wrong way, which is how almost everyone starts
"I have $2,000. I will put $500 into this one."
That decides the size first and leaves the loss to chance. You have no idea what you are risking, because you have not decided where you are wrong.
The right way
Turn it around. Start with the dollars you are prepared to never see again, then let that decide how much you buy.
A common rule is one dollar in every hundred in the account. It will feel far too small. That feeling is why the rule exists.
Watch it happen instead of reading about it
Nothing below needs any numbers from you. It is already filled in with a sensible answer. Change one thing at a time and watch the answer move.
The one to chase: move the stop and change nothing else. Same risk, completely different amount of money going in.
Atlas has called a GO. Everything below is already filled in with a sensible answer. Change any one of them and watch the answer move.
Your accountwhat you have in total
The marketthe thing Atlas called
What you will lose if you are wrongdecided before anything else
Where your stop goesthe price where you admit you were wrong
You put in
$400
which buys 4 shares at $100
$400 of your $2,000 account
If it falls to $95 you are out, down $20. Exactly what you chose before you started.
Notice
You are risking $20 either way. But a normal stop means you hold a middling amount, so you put in $400. Switch to tight and it becomes $1,000. Switch to wide and it becomes $200.
The stop decides the cost, not the price of the market. Swap the share for Bitcoin and you put in the same money. Only the number of units changes, because you are buying a slice of something expensive instead of a few of something cheap.
Illustrative numbers, not live prices, and not a suggestion to trade anything. The point is the relationship between the three, which holds whatever the real numbers are.
Educational content only. Not financial, investment, tax, or legal advice. Rashad Global is paid nothing by any exchange, broker, or tool named on these pages, and nothing here is a recommendation to use any of them, or to buy, sell, or trade any asset.