The rules determining how big each trade should be relative to account equity. Position sizing models ensure each trade’s size aligns with risk tolerance and strategy logic. For instance, a fixed fractional model might risk 2% of capital per trade, whereas a Kelly or volatility-based model adjusts size based on win-rate or market volatility. Investopedia defines position sizing as deciding how many units to trade accounting for account size and risk. In automated trading, a position sizing module calculates lot sizes so that no single loss exceeds a preset risk threshold.

Back to Robots Glossary Index