Set a loss budget before choosing a position
A risk budget is a planning limit, not a forecast. An illustrative $10,000 account and 1% risk budget imply $100 at risk. These values explain the arithmetic; they are not recommended settings.
Translate price distance into asset units
Divide the risk budget by the absolute difference between entry and stop. With a $100 entry and $95 stop, $100 divided by $5 gives 20 units, or $2,000 of exposure. A short position needs a stop above entry.
Understand what the calculation leaves out
Stops may fill at a worse price or fail during gaps or outages. Fees, slippage, liquidity, funding, leverage, and liquidation can change losses materially. A tighter stop increases the calculated position; it does not make the trade safer.
Continue with a practical example
Explore the free tools and change the assumptions to see how the arithmetic responds.