Fixed Fractional vs Fixed Amount position-sizing" class="glossary-link">Position Sizing

Fixed amount risks a constant dollar value per trade, e.g. $200 on a $10,000 account (2%). Position size = $200 / (entry - stop).

Fixed fractional risks a constant percentage of current equity, recomputed each trade. At 2% on $10,000 you risk $200; after equity grows to $12,000 you risk $240; after a drop to $8,000 you risk $160.

The asymmetry is the whole story. Fixed fractional compounds winners and throttles losers — a 50% drawdown cuts your risk dollars in half, extending survival. Fixed amount does the opposite: as equity shrinks, $200 becomes a larger percentage of the account, accelerating ruin; as equity grows, $200 becomes trivial, capping upside.

When each fits

Fixed amount suits two cases:

1. Small accounts under $5,000, where fractional dollars shrink below minimum lot sizes and become unexecutable.
2. Prop-firm evaluations with fixed drawdown limits, where risk must be sized to the starting balance, not current equity.

Fixed fractional suits funded accounts and long-term growth. Use 0.5–1% for unproven systems, 1–2% for validated edges, never above 2%.

A workable hybrid

Risk 1% of current equity, floored at $100 and capped at $500 during evaluation. This preserves fractional compounding while staying executable on small accounts and bounded on large ones.

The execution pitfall

Recompute fixed fractional on closed equity, not open equity. Sizing off unrealized P&L forces you to add risk into winning positions and over-leverage before the trade is closed. Recompute only after each trade settles, against the new account balance.

Quick decision

The method you can follow mechanically through a losing streak beats the theoretically optimal method you abandon in week two.