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Single-name limit

A hard cap on how much risk or capital any one instrument may take, independent of how good the idea looks.

A single-name limit says: no more than X% of equity in one ticker, or no more than N risk units. Common settings are 5-10% of capital and 2 units of risk for active traders.

Its purpose is to survive the case you cannot foresee: an accounting fraud, a failed trial, a halt that reopens 40% lower. Stops and analysis do not protect against a trading-halt followed by a gap, and the only defence is size.

Enforce it at the idea level too. If a name gets to the limit by rising, that is fine - trim if you want, but the risk is now largely in open profit. If it gets there by adding, you have overridden the rule. Write the limit into the sizing spreadsheet so it is checked automatically rather than remembered.

Related: concentration-risk, position-limit, max-open-risk, unit-sizing

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

How a position size is worked outAccount size, risk per trade and stop distance feed into one box giving the number of shares.ACCOUNT SIZE$25,000your capitalRISK PER TRADE1%of the accountSTOP DISTANCE$0.50entry to stopPOSITION SIZE500 sharesrisk budget: $25,000 × 1% = $250position size: $250 ÷ $0.50 = 500 shares
Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.

Educational only, not advice. Spotted an error? Post in Site Feedback.