What assumption does this make?
It assumes the position can exit at the stop price without gap or slippage. Real markets can execute worse, and fees add to the loss. The result may require more capital than you have; it is not a check that the position is affordable or suitable. The chosen risk percentage is your input, not a recommendation.
When is the output unusable?
Do not use it when the stop is not a genuine risk boundary, the market lacks liquidity or the instrument has contract multipliers not represented by plain quantity.
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