What is position sizing?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
Position size is how much you put into a single trade. For the same market move, a larger size produces a larger swing relative to your total assets. A size that is large relative to the order book also moves the price against you through its own execution.
Key points
- The quantity or amount committed to one trade
- Larger size means a larger swing in total assets
- Too large for the book and your own order moves price
- On margin it also sets the buffer before liquidation
Definition
The quantity or notional amount held in a single trade, meaningful both as a share of total assets and in relation to the depth of the order book.
With 1,000,000 yen in total assets and 100,000 committed, a 20% fall in the asset costs 20,000 — 2% of the total. Commit 500,000 instead and the same fall costs 100,000. The market is identical; only the proportion changed.
The other dimension is size relative to the book. An order too large for available depth walks through levels and ends up with a worse average fill. The same problem returns on the way out: getting in at a price says nothing about getting out at one.
On margin, size maps directly onto the distance to liquidation. Doubling the size on the same collateral doubles the margin requirement and halves the adverse move needed to breach the maintenance ratio. Here, how much you hold is the risk design itself.
Watch out for
- · In thin markets you may be unable to exit the size you hold at the price you expect
- · On margin, a larger size narrows the distance to liquidation
- · Spreading across assets helps little when highly correlated ones fall together