Portfolio Heat
The combined risk of every open position, measured as a percentage of your account.
Also called: total risk · open risk · aggregate risk
Written by Javier Sánchez Ros
In plain language
Per-trade risk is only half the picture. Five open trades at 1% each mean 5% of the account is exposed simultaneously.
Portfolio heat sums the live risk across all positions. Many traders cap it at 4–6%, so that a broad market shock cannot cause an outsized loss.
Heat falls as trades move into profit and stops are trailed to break-even, which naturally makes room for new positions.
The formula
Portfolio Heat
Sum of open trade risks ÷ Account Equity × 100
Worked through
Eight open positions, each obeying the 1% rule perfectly
- Risk per position
- 1%
- Positions open
- 8
- Portfolio heat
- 8%
- All eight stop out
- −8% in a day
Not one of these trades broke the rule. Each was sized to lose exactly 1% at its stop, and each was entered on its own merits, hours apart, on a different chart. The rule was followed eight times and the account is down 8% by the close.
Portfolio heat is the number that would have shown this coming: the sum of what is currently at risk across everything open. It is the only figure that treats the account as one thing rather than as eight unrelated decisions, and almost no platform displays it.
A working limit is a ceiling on total heat — commonly 4 to 6% — enforced at the moment of entry. Once heat is at the cap, the next setup is simply not taken, however good it looks. That rule does its work exactly when it is most unwelcome, which is on the days everything looks like it is lining up.
It matters most when the positions rhyme. Eight unrelated bets losing together is bad luck; eight expressions of the same idea losing together is a certainty, and the second is far more common than it looks from inside.
Why it matters
It is entirely possible to follow a 1% rule perfectly and still lose 8% in a day by holding eight correlated positions at once.
Common mistakes
- Counting only the largest position instead of the total.
- Treating positions in the same sector or currency as independent risks.
- Adding a new trade without checking what is already open.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
The fixed share of your account you are willing to lose on any single trade.
The hidden risk of holding several positions that tend to move together.
The set of rules that decides how much you can lose, before you think about what you can win.
The decline from an account’s peak value to its lowest point before a new peak.
The amount of an asset you buy or sell in a single trade.