The basic arithmetic
For a simple cash instrument, divide the loss budget by the assumed loss per unit. The result gives a quantity under those assumptions. This is a planning calculation, not a guarantee of the final loss. It does not select a suitable risk percentage for an individual.
Worked example
Suppose an illustrative $10,000 account assigns $100 to a trade plan. An entry at $50 and a planned exit at $48 imply $2 of price risk per share. Ignoring costs, $100 ÷ $2 gives 50 shares. Their purchase value is $2,500. A $100 intended loss budget therefore does not mean a $100 position.
Include the missing costs
If the plan allows $0.10 per share for round-trip costs and slippage, use $2.10 per share. The budget supports 47 whole shares when rounded down. Their modelled loss is $98.70. If the actual exit is substantially below $48, the realised loss can exceed that amount.
Check units before using the formula
Futures require the contract multiplier. Currency positions may require conversion to the account currency. Minimum trade increments also matter. Several positions based on the same market view should be assessed together; repeating a small trade does not make the combined exposure small.
Sources & method
The calculations use stated hypothetical inputs and reproducible arithmetic. They are not achieved returns.