Crypto glossary
Position sizing
Position sizing is deciding how much capital to put into each trade, usually based on the share of the account at risk and the distance to the stop-loss.
The standard method starts from risk rather than from a target amount. The trader sets the maximum loss per trade, for example 1% of the account, and the stop distance from entry. Dividing the first by the second gives the position size: risking 100 dollars with a stop 4% away means a position of 2,500 dollars. Volatility-based variants use measures such as the average true range to set the stop distance.
With leverage, size and margin are different things. A trader can open a 2,500-dollar position with 250 dollars of margin at 10x, but the loss at the stop is still 100 dollars. Confusing the two, and sizing by available margin rather than by risk, is a common route to liquidation in crypto derivatives.
Fixed rules keep losses consistent, but they do not account for correlation: five long positions in different altcoins often behave like one large bet on the market, so total exposure needs a cap of its own.
Example
A trader with 20,000 dollars risks 0.5% per trade. For a SOL entry with a stop 8% below, she sizes the position at 1,250 dollars, so a hit stop costs 100 dollars.