Fixed-fraction sizing
How does risking the same share of capital each time change position size as the account balance moves?
In plain words
Fixed-fraction sizing means each position is set so that, if a stop loss is hit, only a set percentage of total capital is lost. As the account grows, the position grows; as the account shrinks, the position shrinks with it, keeping risk per trade roughly constant.
Why it matters
This ties exposure to the surviving balance, so a losing streak reduces position size automatically rather than letting losses accelerate. It also means wins compound: a larger account risks a larger absolute amount at the same percentage. The rule needs a stop distance, and in fast markets the actual loss can exceed the intended fraction.
In a real week: ETH, week of 22 February 2021
In the week of 22 February 2021, ETH opened at 1933.54 and closed at 1419.18, a -26.6% weekly return with a 49.73% range and annualised realised volatility of 165.7%. The worst day, 23 February, fell -11.23%, and the largest single hour, at 08:00 UTC on Tuesday 23 February, moved -8.9%. A fixed-fraction rule would have cut position size as capital fell, so each stop-out cost the same share of a smaller balance.
A common mistake
Treating fixed-fraction sizing as risking a fixed dollar amount. The dollar at risk changes with the balance; only the percentage stays constant. It also assumes losses are limited by a stop, which fast markets can overrun.