Position Sizing

Sizing decides survival. Risk a small, fixed fraction of capital per trade so that a losing streak, which will happen, is survivable.

Calculator

# Equity, structure stop
python3 scripts/risk.py size --capital 500000 --risk-pct 1 --entry 1450 --stop 1410
# Equity, ATR stop + gap-risk check for a midcap
python3 scripts/risk.py size --capital 500000 --risk-pct 1 --entry 1450 --atr 28 --atr-mult 2 --cap midcap
# NIFTY futures: lot rounding + margin
python3 scripts/risk.py size --capital 800000 --risk-pct 1 --entry 24950 --stop 24800 --lot-size 65 \
    --margin-per-lot 165000 --cost-pct 0.06
# MTF at 3x
python3 scripts/risk.py size --capital 300000 --risk-pct 1 --entry 820 --stop 790 --leverage 3
# Win rate / payoff / Kelly from your journal (date,symbol,side,entry,exit,stop,qty,charges | or pnl)
python3 scripts/risk.py journal trades.csv

--cost-pct is the round-trip cost as % of entry. Use about 0.25 for delivery, 0.05 for intraday, and 0.06 for index futures, or compute it exactly with trading-costs. Get margin per lot from the broker's margin calculator or the MCP margin tool, because SPAN changes daily.

Method 1: fixed fractional (default)

Risk budget = Capital × Risk%            (÷ leverage when using MTF/MIS margin)
Units       = Budget ÷ (|Entry − Stop| + cost per unit)
F&O         = floor(Units ÷ lot size) lots

Situation	Risk % per trade
Normal swing/positional, no leverage	0.5–1% (max 2%)
New or unproven setup	0.25–0.5%
With MTF/MIS leverage	base risk ÷ leverage (see below)
F&O beginners	0.5%, and only defined-risk structures
Total open risk across all positions	≤ 6%

Why divide by leverage? The loss at the stop doesn't depend on leverage. But leverage lets a position grow beyond your cash, so a gap through the stop or a margin call hurts far more. risk.py --leverage therefore divides the risk budget by the leverage as a deliberate safety haircut. Pass --leverage 1 if you want the plain calculation.

Example: capital ₹10 lakh, 2% risk, entry ₹1,800, stop ₹1,700. Without costs that is 200 shares. With 0.25% round-trip costs, risk per share is ₹104.5, so 191 shares. That is ₹3.44 lakh, 34% of capital, which breaches the 20% single-stock cap, so cap at about 111 shares unless the user accepts the concentration.

Method 2: ATR-based stop distance

Stop = Entry − ATR(14) × k         k: 1.5 (calm, ADX<20) | 2.0 (normal) | 2.5 (volatile, ADX>30)

Volatile stocks automatically get smaller size. Get ATR from ta.py summary.

Method 3: Kelly (needs 30+ trades of history)

Kelly% = W − (1 − W) / R      W = win rate, R = avg win / avg loss

Kelly gives the fraction of capital to risk per trade, not to invest. Use at most half-Kelly and never more than 2%. risk.py journal computes W, R, profit factor, drawdown and Kelly from a CSV.

F&O specifics

• One lot is the minimum unit. At end-October 2026 levels, one NIFTY lot (65 × ~23,050) is about ₹15 lakh notional and one BANKNIFTY lot (30 × ~54,700) about ₹16.4 lakh. If one lot at a sensible stop risks more than 1–2% of capital, the answer is don't trade futures. Use a defined-risk option spread, or trade the cash stock instead.
• Option buying: the premium is the maximum loss. Size so that total premium at risk ≤ risk budget, or use a premium stop (for example, exit at −40%) and size on that.
• Option selling: size on max loss (spreads) or a stress move (naked; 2–3× the expected move). Never size on margin alone.
• Margin headroom: keep used margin ≤ 50% of capital. With --margin-per-lot, risk.py size caps lots at that limit automatically (--max-margin-pct changes it). Margins rise on volatility spikes, on expiry day (+2% ELM on shorts), and for stock F&O in expiry week (physical delivery).
• 50:50 rule: at least half of F&O margin must be cash or cash-equivalent.

Indian risk overlays (always check)

1. Gap-through-stop. --cap largecap|midcap|smallcap (3/5/10%) or --gap-pct shows the loss if price gaps beyond the stop. Results, global sell-offs and regulatory news gap Indian stocks overnight.
2. Circuits. In stocks with 5% or 10% bands, a lower circuit can last days, and the stop never fills. Cut size so a two-day circuit run (2 × band) stays tolerable.
3. Liquidity. Keep the position below about 1% of the stock's average daily traded value. SME and illiquid small caps need far smaller sizes.
4. Correlation. Three private banks are effectively one position. Apply the sector limit.

Portfolio limits (hard)

Constraint	Limit
Single stock	≤ 20% of capital (≤ 10% small caps)
Single sector	≤ 35%
Total open risk (sum of stop distances)	≤ 6%
Correlated names in one sector	≤ 3
F&O margin used	≤ 50% of capital

Output

Position: N shares / L lots (qty Q)
Entry ₹E | Stop ₹S (x% away, method) | Value ₹V (y% of capital) | Margin ₹M
Risk if stopped: ₹R (r% incl. costs) | Gap-through loss: ₹G (g%)
Notes: [caps applied, lot too big, leverage adjustment, liquidity]