Portfolio Heat
The total percentage of account capital currently at risk across all open positions simultaneously.
Portfolio heat is the sum of the risk on every open position at a given moment. If you have five trades each risking 1%, your portfolio heat is 5% — meaning a worst-case simultaneous stop-out on all five would cost 5% of equity.
Managing total portfolio heat prevents correlated positions from combining into an unexpectedly large loss. Most risk-aware traders cap total heat at 5–10% of equity regardless of the number of setups available.
On the desk
Open positions: Trade A risks $200, Trade B risks $150, Trade C risks $180. Portfolio heat = $530. On a $20,000 account that is 2.65% total risk. If all three get stopped out simultaneously, the account loses 2.65%.