How to Assess Position Risk: A Step-by-Step Guide

Position risk is measured not in price movement but in portfolio money, and it is calculated before the purchase, not after. The sequence is this: name the level at which the idea is acknowledged to be wrong; convert the distance to that level into roubles; divide the portfolio's acceptable loss by that distance, and the result is the position size. Everything else — liquidity, correlation with what you already hold, the event calendar and tax — is a check that can reduce the size you arrived at but never increases it.

What exactly you are measuring

The phrase "this stock is risky" contains no quantity and therefore settles nothing. There are several measurable questions here, and they are different ones. How widely the instrument moves on an ordinary day is volatility. How much you lose if the scenario does not play out is position risk. How much the portfolio loses if a whole class of ideas fails at once is concentration. Valuation multiples have nothing to do with this: 3,90 describes price relative to earnings, not the depth of a drawdown, and a stock that is cheap on its multiple falls in exactly the same way as an expensive one. The instrument card is needed at the checking step, not at the decision step: SBER.

Step 1. Name the level at which you are wrong

Until the level is named, the risk is undefined: the position has no boundary, and so the loss has no size either. The level is set not by a wish ("I don't want to lose much") but by the structure of the idea: the price below which the reason for buying stops working. For a stock bought ahead of earnings, it is the market's reaction to the report itself — see the reporting calendar. For a long-term position it may be not a price but an event: a change in dividend policy, a revision of the key rate, the loss of a core asset.

A level placed "a bit closer, so that the risk is smaller" does not reduce the risk; it raises the probability of being taken out by ordinary noise.

Step 2. Convert the distance into money

What follows is arithmetic that is worth doing before the trade. Take the portfolio's acceptable loss on one idea — an amount you are prepared to lose regularly without changing your behaviour. Divide it by the distance from the entry price to the exit level. The result is the number of shares. If it comes out at less than a lot, there is no position: the instrument does not fit the size of your account, and that is a normal answer.

An important consequence: position size is inversely proportional to the width of the stop. A wide stop is not forbidden — it simply means a smaller volume. The mistake arises when the volume is taken "as usual" and the stop is set from the chart: then the risk is determined not by you but by accidental geometry.

Step 3. Check that there is a way out of the position

The calculation assumes that you will exit at the price you named. That holds only when liquidity is sufficient. Look not at the price but at how the order book is built and how wide the spread is in normal hours and at the open: in an illiquid instrument, slippage eats up the calculation entirely. It is convenient to compare instruments using the list of stocks, the bonds section and, separately, OFZ — government paper and the third tier are different worlds.

Step 4. Add the position to what you already hold

Risk adds up not by security but by factor. Several securities from one sector, with one revenue currency or one dependence on the key rate, are one position split into parts, and the drawdown will hit all of them at once. Before assessing a new idea in isolation, name the factor through which it duplicates the portfolio. If the factor is the same, add the risks together rather than counting them separately.

Step 5. Look at the calendar

A date can change the risk more than the chart does. The ex-dividend date produces a gap that acts like a stop even though the idea has not broken: check the payout calendar — the nearest dates:

For earnings reports and corporate events, see the events calendar; ahead of them, the distance to the exit level has to be calculated from the expected price gap, not from the ordinary daily range.

Tax and other deductions from the calculation

A loss is counted before tax, a profit after it. The calculation of the tax base for investment income is set by law: 13%. For bonds, add accrued coupon interest and the time to maturity: a long-dated bond reacts more strongly to the rate, and the risk of the position is determined not by the entry price but by duration. Terms that appear here for the first time are explained in the glossary.

What this method does not do

It does not predict a drawdown and does not protect against a price gap: when the market opens with a gap, the exit happens at a worse price than the calculated level, and this is provided for in advance by a margin in the position size. It does not assess issuer risk — that requires financial statements and the debt structure, not position arithmetic. And it says nothing about the probability that the idea is right: position size answers the question "how much", not "whether it is worth it".