Portfolio Heat: Measuring Your Total Open Risk

Why “1% per Trade” Is Not Enough

Most traders learn one risk rule early: never risk more than 1% of your account on a single trade. It is a good rule. But it quietly assumes you only ever have one trade open. The moment you hold five positions at once, that discipline can betray you — five trades each risking a “safe” 1% add up to 5% of your account exposed at the same time, and a sharp, correlated market move can hit every stop-loss in the same hour.

The number that captures this is portfolio heat: the total percentage of your account you would lose if every open position hit its stop-loss simultaneously. It is the multi-position version of the per-trade risk rule, and it is the number that actually stands between you and a bad day. This guide explains how heat is calculated, why it matters beyond per-trade risk, and how it differs from raw exposure. The Portfolio Heat calculator tallies it across all your open trades at once.

How Portfolio Heat Is Calculated

Heat builds up from the risk on each individual position. The risk on one position is simply the distance from your entry to your stop-loss, multiplied by your position size:

• Risk per position = |entry price − stop price| × position size
• Total risk ($) = the sum of risk across every open position
• Portfolio heat = total risk ÷ account size × 100%

Note the absolute value: risk is direction-agnostic. A long with its stop below entry and a short with its stop above entry produce the same risk for the same distance and size — the calculator does not need to know which way you are trading, only where the stop sits. Positions with no entry, stop, or size are simply ignored.

Heat Is Not the Same as Exposure

There is a second, separate number worth tracking: exposure, your total notional position size as a percentage of the account, regardless of stop distance.

• Total notional = sum of (entry price × size) across positions
• Exposure (% of account) = total notional ÷ account size × 100%

Heat and exposure answer different questions. Heat asks “how much do I lose if the stops trigger?” Exposure asks “how much market am I actually carrying?” You can run low heat with high exposure — large positions on tight stops — or the reverse, small positions with wide stops. Exposure also reveals how much leverage you are really using. Watch both.

Worked Example

Suppose your account is $10,000 and you have three positions open — two longs and one short. The table works each one to its stop.

Position	Entry	Stop	Size	Risk ($)	Notional ($)
Long A	$100	$95	20	$100	$2,000
Long B	$50	$48	40	$80	$2,000
Short C	$200	$210	5	$50	$1,000
Total	—	—	—	$230	$5,000

Total risk is $230, so portfolio heat = $230 ÷ $10,000 = 2.30% — comfortably inside a sane limit. But total notional is $5,000, so exposure = 50% of the account. Notice Short C: its stop sits $10 above entry, and the absolute-value rule counts that identical to a long whose stop is $10 below. The example also shows the split clearly — heat is a modest 2.3% while exposure is a hefty 50%. If those three assets are correlated and all move against you at once, the 2.3% is what you actually lose when the stops fire; the 50% is how much you would be riding if you had no stops at all.

How to Use the Portfolio Heat Calculator

1. Account Size — enter your total account equity. Heat and exposure are both expressed as a percentage of this.
2. Add Position — add a row for each open trade and fill in its entry price, stop-loss price, and position size. Add as many rows as you have positions; leave none of the three blank or the row is skipped.

Once your positions are in, the tool reports Portfolio Heat (% of account at risk), Total Risk ($), Total Notional Exposure, Exposure (% of Account), and the count of Open Positions. Update the rows as you open and close trades to keep a live read on your aggregate risk.

Setting a Heat Limit — and the Correlation Caveat

Most professional risk frameworks and prop firms cap total portfolio heat somewhere between 5% and 10% of the account, even when each individual trade risk looks small. Picking a ceiling and refusing to open a new trade that would breach it is one of the simplest ways to survive a losing streak.

The honest caveat is correlation. Heat treats every position as if its stop-out is an independent event, but markets do not work that way. Five uncorrelated 1%-risk trades are genuinely safer than five highly correlated ones — if all five are long different altcoins, a single market-wide dump can stop out every one at once, turning your “5% heat” into a real 5% loss in one move. The more correlated your open positions, the lower your heat ceiling should be. Heat sizing starts from the same foundation as single-trade risk, so build it on top of a solid position sizing and risk management process, and keep an eye on how deep realized losses actually run with a drawdown and recovery analysis.