Portfolio Heat
Portfolio heat is the total amount you would lose if every open position hit its stop at once, usually as a percentage of the account. Five trades each risking 1% give 5% heat. Traders cap it to avoid large combined losses.
Portfolio heat is the total you would lose if every open trade hit its stop at the same time, shown as a percentage of the account. Five trades each risking 1% give 5% heat. Traders set a heat cap so that a bad day across many positions cannot do serious damage. Gaps and correlation can make real losses bigger.
- Category
- Risk Management
- Reading time
- 3 min
- Also called
- Total open risk, Account heat
- Updated
Portfolio heat in plain words
Each trade's risk comes from its stop distance multiplied by its position size.1
Heat adds those amounts up across every open trade, and sizing each one properly keeps the total under the limit you set.2
A stop is a plan, not a promise — slippage or gaps can make the real loss bigger.1
How to measure and cap heat
Find each trade's risk
For each trade, multiply the stop distance by the position size to get the money at risk.1
Add them up
Sum the money at risk across all open positions.
Divide by equity
Express the total as a percentage of the account.
Set a cap
Set a maximum heat in your plan and size new trades so the total stays below it.2
Group related trades
Watch for clusters — lots of risk in one investment, asset class or sector can magnify losses.3
Recheck as stops move
Remember risk scales directly with size: double the lots, double the risk.2
Worked examples
Example 1 — Five 1% trades
5% heatA hypothetical account of 50,000 has five trades each risking 500 to its stop.
| Total | 5 × 500 = 2,500 |
| Heat | 2,500 ÷ 50,000 = 5% |
Each 500 comes from stop distance times size, and together they make 5% heat.1
Example 2 — Trailing stops cut heat
3% heatTwo hypothetical trades move their stops to break-even, so only three still risk 500.
| Heat | 1,500 ÷ 50,000 = 3% |
Tightening the stops shrank each trade's risk and lowered total heat.1
Example 3 — Gap beyond stops
−1,800Overnight, hypothetical prices gap past two stops and those two trades lose 900 each instead of 500.
| Planned | 1,000 |
| Actual | 1,800 |
Slippage and gaps can push the real loss above plan, so treat heat as a minimum, not a maximum.1
Risk per trade vs portfolio heat
| Aspect | Risk per trade | Portfolio heat |
|---|---|---|
| Scope | One position | All open positions |
| Typical size | Small % | Sum of trades |
| Controls | Single loss | Combined loss |
| Changes when | Stop or size moves | Any trade opens or closes |
Where traders use it
Trade limits
Capping heat beside Risk per Trade.
Loss limits
Linking to daily Daily and Weekly Loss Limits.
Correlation
Spotting hidden Correlation.
Plans
Writing a heat cap in a Trading Plan.
Advantages and disadvantages
Advantages
- One number for total open risk.
- Easy to compute from stops.
- Stops many small risks adding up unnoticed.
- Fits any market.
Disadvantages
- Assumes stops fill at their price.
- Ignores correlation unless adjusted.
- Positions without stops break it.
- A cap can limit good opportunities.
Going deeper
Read as far as you need. Each level builds on the one before it.
Building block
Beginner
Per-trade risk is stop distance times position size; heat is the sum across trades.1
Correlation
Intermediate
Large exposure to one investment, asset class or sector magnifies losses, so related trades should be counted as one bigger bet.3
Gaps
Advanced
Heat measures planned risk only; real losses can be larger after slippage or gaps.1
Common mistakes
Counting only new trades
Include every open position.
Ignoring correlation
Group related trades.
No cap
Set a limit before trading.
Forgetting gaps
Leave a buffer.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Heat is total risk if all stops hit.
- Add each trade's stop risk.
- Express it as % of equity.
- Cap it in your plan.
- Correlation and gaps make real risk higher.
Frequently asked questions
What is a common heat cap?
Do break-even stops count?
Is heat the same as drawdown?
Further learning
- Risk per Trade
The per-trade piece.
- Position Sizing
Setting size from stops.
- Correlation
When trades move together.
- Daily and Weekly Loss Limits
Daily and weekly caps.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- CMC Markets. What is a stop loss? Explained simply (opens in a new tab) Checked .
- CMC Markets. Lot Size in Forex: Complete Guide to Position Sizing (opens in a new tab) Checked .
- FINRA. Concentrate on Concentration Risk (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.