Position Sizing in Crypto: How Much to Put Into Each Trade

Position sizing is deciding how much to put into a trade. It sounds like the least interesting part of trading, and it is the part that decides whether you are still trading a year from now.

Two traders can take the same entries on the same coins and get opposite results, purely because one risks a small fixed slice of the account on each idea and the other bets whatever feels right that day. Entries decide how often you win. Sizing decides what a loss costs, and in a market that can move 10 percent in an afternoon, that is the number that matters.

The one formula

Position sizing starts from three numbers you know before you enter:

• Account size: the money in your trading account.
• Risk per trade: the share of the account you are willing to lose if this trade fails, usually 1 to 2 percent.
• Stop distance: how far your stop loss sits from your entry, as a percentage.

Then:

Position size = (account size × risk per trade) ÷ stop distance

A worked example in rupees

Your account holds 50,000 rupees and you risk 1 percent per trade, so the most this trade can cost is 500 rupees.

You want to buy a coin at 2,000 rupees. The chart says your idea is wrong below 1,900, so that is where the stop goes. The stop distance is 100 rupees, which is 5 percent.

Position size = 500 ÷ 5% = 10,000 rupees. That buys 5 coins.

If the stop is hit, each coin loses 100 rupees, and 5 coins lose 500. Exactly the risk you chose.

Now suppose the chart put the stop at 1,700 instead, a 15 percent distance. The same formula gives 500 ÷ 15% = about 3,333 rupees, or 1.67 coins. Wider stop, smaller position, same 500 rupee risk.

That is the whole trick. You never choose the position size directly. You choose the risk and the stop, and the size follows.

Why 1 percent is not as timid as it sounds

Every strategy has losing streaks, including good ones. A trader who wins half their trades has roughly an even chance of hitting seven losses in a row somewhere in 200 trades. Sizing decides whether that streak is an annoying month or the end of the account.

Losses are also harder to recover from than they look. A 10 percent drawdown needs an 11 percent gain to get back to even. A 50 percent drawdown needs a 100 percent gain. A small risk per trade keeps you in the part of that curve where recovery is realistic.

Where leverage fits

Leverage does not change any of the maths above. It only changes how much margin the exchange holds against the position.

In the example, a 10,000 rupee position at 5x leverage needs 2,000 rupees of margin. If the stop at 1,900 is hit, you still lose 500 rupees. The risk came from the size and the stop, not from the leverage.

Leverage becomes dangerous in two situations. The first is when the small margin tempts you into a position far larger than the formula allows. The second is when the liquidation price sits closer to your entry than your stop does. At 5x, liquidation is a little under 20 percent away, so a 5 percent stop is comfortably safe. At 25x, liquidation is less than 4 percent away, and that same 5 percent stop will never be reached, because the exchange closes the position first.

Include fees, and remember TDS

Fees come out of every trade, win or lose. If your round trip fees are 0.2 percent of the position, the 10,000 rupee trade costs 20 rupees in fees, so a stopped trade loses 520 rather than 500. With tight stops and large positions, fees become a real share of the risk, so add them to the calculation.

In India, 1 percent TDS is also deducted when you sell crypto. It counts toward your tax for the year rather than being a fee, but it does tie up cash for anyone trading often. The crypto tax guide explains how it works.

Sizing long-term holdings

Investors who buy and hold without a stop still need sizing, just a different version. With no stop, the realistic worst case is a deep drawdown. Bitcoin has fallen more than 75 percent from its peak in more than one cycle, and smaller coins have often fallen 90 percent or more.

So the question becomes: if this holding fell 80 percent, how much of my total savings would that be, and could I live with it without selling at the bottom? If the answer is no, the position is too big. Module 5 of the Academy covers this with position caps inside a core and satellite portfolio.

Checklist before every trade

1. Know the stop price before you think about size.
2. Work out the risk amount: account size times 1 to 2 percent.
3. Divide by the stop distance to get the position size.
4. If the trade is leveraged, check the liquidation price sits well beyond the stop.
5. Add fees to the risk when the stop is tight.

The calculators on Fedha Academy handle steps 2 and 3 for you, and paper trading is the place to make the habit automatic before real money is involved. Module 14 of the Academy, Risk Management and Execution, goes further on risk rules and execution.