position sizing

Position sizing is the process of determining how much money to invest in a specific trade or asset. It’s a key risk management tool that helps investors control potential losses by calculating an appropriate amount based on their total capital and the level of risk they’re willing to accept. Proper position sizing ensures that no single trade can significantly harm your overall portfolio, balancing the pursuit of returns with risk control. Essentially, it’s about making strategic decisions on investment amounts to maintain financial stability and avoid overexposure to any one position.