How much to invest: risk and position sizing

The most important decision in crypto is how much to put in, not which coin to buy. Get the size right and a bad outcome is survivable. This lesson gives you a way to think about it. It is education, not personal advice.

Start from the worst case

Regulators agree on the starting point.

The UK's Financial Conduct Authority: "you should be prepared to lose all the money you have invested."
EU financial regulators call many crypto assets "highly risky and speculative" and "not suited for most retail consumers".

So ask the question the other way round. What amount could you lose completely without changing your life? That number is your ceiling.

First things first

Crypto comes after the basics:

An emergency fund. Cash set aside for unplanned costs, kept somewhere safe and easy to reach.
Expensive debt. Paying off a credit card is a certain return. No investment offers that.
Long-term savings. Pension contributions and diversified investments.

Money you will need within a few years does not belong in something that can halve in months.

Size it as a share of your savings

Think in percentages, not coins. Suppose crypto falls 80%, as bitcoin has done before.

Share of savings in crypto	Effect on your total savings
2%	Down 1.6%
5%	Down 4%
20%	Down 16%
50%	Down 40%

A small share turns a crash into an annoyance. A large share turns it into a crisis. No single percentage is right for everyone. The right one is the one you could watch fall 80% and still sleep.

Do not borrow to buy

Borrowed money and leveraged trading multiply losses. With leverage, a modest price move can wipe out your whole position, and US regulators warn you can lose more than you put in. If you could not afford it in cash, you cannot afford it on credit.

Write your rules before you buy

Decisions made during a price swing are usually poor. Write down:

The most you will put in, as an amount and as a share of savings
How you will buy, for example monthly (see Lesson 16)
What you will do if the price falls by half
What you will do if it doubles

Then follow the plan. Two habits do the most damage: adding money to win back a loss, and buying more because others are getting rich.

Inside your crypto share

Size matters within crypto too. Smaller coins are riskier than bitcoin or ether, and memecoins are riskier still. One reasonable approach is to treat the speculative part as money already spent.

When to get advice

If the sums are large for you, or your situation is complicated, speak to a licensed financial adviser who is paid by you and not by commission.