Position sizing with leverage

Leverage doesn't change how much you should risk per trade. It changes how small your position needs to be to keep that risk constant and more predictable. A trader using 10x leverage on a $10,000 account should be using smaller positions, not larger ones.

Before working through the formula, read our risk management for futures guide for the broader context position sizing sits inside.

Before applying the position sizing formula, note that how you adjust leverage on Kraken depends on your region. In the EU and other non-US geos, you select leverage via a slider at order entry; up to 10x in the EU, up to 100x on BTC and ETH in locations outside the US.

In the US, leverage isn't a slider setting, instead it's determined by the contract structure and how much collateral you post against the position. More posted collateral = lower effective leverage on the same notional. The position sizing formula below works either way, because it produces a notional position size first, with leverage handled separately as a margin calculation.

Position size (USD notional) = (Account value x Risk %) / Entry price - Stop-loss price

The symbols mean absolute value: always use the positive distance between entry and stop-loss, regardless of direction.

Variables:

• Account value: total futures account balance in USD
• Risk %: percentage of account to risk on this trade (a common approach is 0.5% to 2%)
• Entry price - Stop-loss price: absolute price distance between entry and stop, always positive whether long or short

Result: USD notional position size. Divide by your leverage to get the margin required.

Notional value is the total market value of your position at the current price. If you hold 0.1 BTC at $60,000, your notional value is $6,000, that's the full exposure your position carries, regardless of how much margin you put up to open it. Leverage lets you control a $6,000 notional position with less than $6,000 in margin, but your profit and loss are calculated on the full $6,000.

For a long, the stop-loss is below the entry price (example: entry $60,000, stop $59,000, distance = $1,000). For a short, the stop-loss is above the entry price (example: entry $3,200, stop $3,280, distance = $80). Both use the positive distance and the formula is identical in both cases.

Setup:

• Account value: $10,000
• Risk per trade: 1% = $100 maximum loss
• Entry price: $60,000
• Stop-loss: $59,000
• Distance to stop: $60,000 - $59,000 = $1,000

Calculation:

• Position size = $100 / $1,000 = 0.1 BTC
• Notional value = 0.1 x $60,000 = $6,000
• At 10x leverage: margin required = $6,000 / 10 = $600

Outcome if stop is hit:

• Loss = 0.1 BTC x $1,000 = $100 = 1% of account

The leverage setting determines how much margin you put up ($600 at 10x vs $1,200 at 5x). It doesn't change the dollar risk if the stop is hit. That's always $100 in this example, because the risk was calculated from the formula, not from the leverage. The figures used in this example are illustrative only and do not guarantee an outcome.

For a short, the stop-loss is above the entry price. Many traders make arithmetic errors here because the direction is reversed. The formula handles this: distance is always the absolute difference, always positive.

Setup:

• Account value: $10,000
• Risk per trade: 1% = $100 maximum loss
• Entry price: $3,200
• Stop-loss: $3,280 (above entry, because this is a short)
• Distance to stop: $3,280 - $3,200 = $80

Calculation:

• Position size = $100 / $80 = 1.25 ETH
• Notional value = 1.25 x $3,200 = $4,000
• At 5x leverage: margin required = $4,000 / 5 = $800

Outcome if stop is hit:

• Loss = 1.25 ETH x $80 = $100 = 1% of account

This example uses 5x leverage rather than 10x. The formula and the dollar risk are the same. Leverage affects the margin required, not the risk per trade. The figures used in this example are illustrative only and do not guarantee an outcome.

The most common leverage misconception is that higher leverage means you should open a larger position. It doesn't. Higher leverage means the same notional position requires less margin.

For a full explanation of how leverage mechanics work, see how leverage works on Kraken.

The Kelly Criterion is a formula for calculating an optimal position size based on historical win rate and reward-to-risk ratio.

Kelly % = Win rate - ((1 - Win rate) / Reward:Risk ratio)

Example:

• Win rate: 50% (0.5)
• Reward:Risk ratio: 1.5:1
• Kelly % = 0.5 - (0.5 / 1.5) = 0.5 - 0.33 = 17% of account per trade

Most traders use a fraction of the Kelly output, commonly 25% to 50% of the Kelly percentage, to reduce variance. This is called fractional Kelly. At half-Kelly, the above example would suggest 8.5% per trade.

Two important caveats apply. First, past win rates don't predict future results. The formula produces its most reliable outputs when based on a large trade sample, typically 100 or more trades.

Second, without a sufficiently large trade history, the Kelly formula produces unreliable outputs and can suggest position sizes that expose the account to significant risk. The fixed-percentage approach (0.5% to 2% per trade) is more practical for most traders who don't have a statistically significant trading record.

Perpetual futures are derivative contracts that allow you to speculate on the price movement of an asset, from cryptocurrencies to tokenized equities, without needing to own the asset itself.

The educational material on this page is for information only and does not constitute an offer to trade futures. Kraken Futures is provided by a different licensed Kraken entity depending on where you live. Derivatives are complex instruments that carry a high risk of rapid losses due to leverage. You should not risk money you cannot afford to lose. Tax treatment depends on your individual circumstances and may change. Geographic restrictions may apply and can change without notice. Kraken products and services may not be covered by investor-compensation or deposit-protection schemes. Nothing on this page is investment, legal or tax advice. Access is subject to eligibility, local regulation and the Terms of Service for the legal entity you face.