Fixed Percent Risk: Stock Calculator Model


Why? The Fixed Percent Risk Money Management Model calculates the number of shares to purchase given a specified percentage amount of your capital that you are willing to risk while also considering your stop price.

Stock Calculation

Fixed Percent Risk Money Management Model Formula: Quantity of Stocks to purchase = (Total Capital * Percentage of Capital Willing to Risk) / (Current Share Price – Planned Stop Loss)

If I have $X dollar amount of capital to invest and I only want to risk 2 percent I can divide it by the difference between the stock price and my planned stop loss (possibly obtained from technical analysis) which will give me the number of shares recommended to purchase following this model.

Inputs

  • Stock Price
  • Stop Price (Exit Price)
  • Total Capital you have available to trade/invest.
  • Risk (%): Percentage of your Capital you are prepared to risk (lose) as a worst case scenario

Outputs

  • Quantity of Stocks to Buy
  • The value of Capital you will invest (typically equal to or less than the Capital you have available)

Fixed Percent Risk Case Studies

Examples of the various calculations:
These examples exhibit the standard long trade calculation. (buy low, sell high) If you would like to calculate a short trade, simply select the "Short” button and input the relevant numbers.

Standard Transaction

INPUTS:
Model Used : Fixed Percent Risk
Position Type : Long
Price $ 12.45
Stop $ 11.01
Profit Target : $ 14.56
Total Capital : $ 1,350.00
Percent Risk : 2%

OUTPUTS:
Quantity : 18
Position Size : $ 224.10
Capital Risk : $ 25.92
Theoretical Profit : $ 37.98
Risk Reward Ratio: 1.4653

Leveraged Standard Transaction

INPUTS:
Model Used : Fixed Percent Risk
Position Type : Long
Price $ 12.45
Stop $ 11.01
Profit Target : $ 14.56
Total Capital : $ 1,350.00
Percent Risk : 2 %
Leverage : 5 %

OUTPUTS:
Quantity : 18
Position Size : $ 11.21
Capital Risk : $ 25.92
Theoretical Profit : $ 37.98
Unleveraged Value: $ 224.10
Risk Reward Ratio: 1.4653

Transaction with a Flat Commission Fee

INPUTS:
Model Used : Fixed Percent Risk
Position Type : Long
Price $ 12.45
Stop $ 11.01
Profit Target : $ 14.56
Total Capital : $ 1,350.00
Percent Risk : 2 %
Brokerage Fee $ 19.95

OUTPUTS:
Quantity : 18
Position Size : $ 224.10
Capital Risk : $ 25.92
Theoretical Profit : $ 37.98
Risk Reward Ratio: 1.4653
Break Even Price: $ 14.67

Leveraged Transaction with a Flat Commission Fee

INPUTS:
Model Used : Fixed Percent Risk
Position Type : Long
Price $ 12.45
Stop $ 11.01
Profit Target : $ 14.56
Total Capital : $ 1,350.00
Percent Risk : 2 %
Leverage : 5 %
Brokerage Fee $ 19.95

OUTPUTS:
Quantity : 18
Position Size : $ 11.21
Capital Risk : $ 25.92
Theoretical Profit : $ 37.98
Unleveraged Value: $ 224.10
Risk Reward Ratio: 1.4653
Break Even Price: $ 14.67

Transaction with Different Brokerage Fees on Buy/Sell

INPUTS:
Model Used : Fixed Percent Risk
Position Type : Long
Price $ 12.45
Stop $ 11.01
Profit Target : $ 14.56
Total Capital : $ 1,350.00
Percent Risk : 2 %
Brokerage Fee $ 19.95 / 0.1 %

OUTPUTS:
Quantity : 18
Position Size : $ 224.10
Capital Risk : $ 25.92
Theoretical Profit : $ 37.98
Risk Reward Ratio: 1.4653
Break Even Price: $ 13.57

Leveraged Transaction with Different Fees on Buy/Sell

INPUTS:
Model Used : Fixed Percent Risk
Position Type : Long
Price $ 12.45
Stop $ 11.01
Profit Target : $ 14.56
Total Capital : $ 1,350.00
Percent Risk : 2 %
Leverage : 5 %
Brokerage Fee $ 19.95 / 0.1 %

OUTPUTS:
Quantity : 18
Position Size : $ 11.21
Capital Risk : $ 25.92
Theoretical Profit : $ 37.98
Unleveraged Value: $ 224.10
Risk Reward Ratio: 1.4653
Break Even Price: $ 13.57

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