Position Sizing, Leverage & Minimum Notional: The Money Math

Most new algo traders blow up because they don't understand the relationship between investment, leverage, and position size. Let's fix that with one page of math and three examples.

The three numbers

Investment ($)

The total pool of capital you're committing to one strategy deployment. Think of it as the 'budget'. Stays fixed until you change it.

Position Size (%)

What fraction of the investment the strategy deploys per trade. 10% means each trade uses 1/10th of the budget as margin.

Leverage (x)

How much the exchange multiplies your margin. 10x leverage means $10 margin controls a $100 position. Losses are calculated on the $100 notional, not the $10 margin.

The formula that matters

Per-trade notional = Investment × (Position Size / 100) × Leverage

Example 1:  $100 × 10%  × 10x = $100 notional
Example 2:  $50  × 50%  × 10x = $250 notional
Example 3:  $500 × 25%  × 5x  = $625 notional

The notional is what actually matters. It has to clear the exchange's minimum (e.g., $23 for Delta India ETH). And every 1% move in the underlying asset moves your notional by 1%, meaning your margin moves by leverage × 1%.

A worked example

Sanjay deploys Meri Strategy with $100 investment, 10% position size, 10x leverage on ETH/USD at $2300.

• Margin per trade: $100 × 10% = $10
• Notional: $10 × 10x = $100
• Quantity: $100 / $2300 = 0.0435 ETH
• If ETH drops 5%: $100 × 5% = $5 loss on $10 margin = 50% of margin gone
• If ETH drops 10%: margin is wiped out, position liquidated

Our three rules for starters

1. Start with 5x–10x leverage until you have a feel for how the strategy behaves on live markets
2. Keep position size at 10% or less until you've watched at least 20 trades play out
3. Never deploy more than 10% of your exchange balance into a single strategy/pair

Every field in AlgoPulse's deploy dialog is designed so you see these numbers BEFORE you confirm. The 'meets minimum' check is your safety net, not a warning to bypass.