Key Takeaways
- Heat adds up. Per-trade risk limits say nothing about the total, and the total is what a bad week actually charges the account.
- Heat is not exposure. A portfolio can be 80% invested while risking 4%, because the stop, not the position size, defines the risk.
- Correlated positions behave like one larger position. Six semiconductor trades at 1% each are closer to a single 6% trade than to six independent 1% trades.
- A heat ceiling is a budget, and budgets bind. Once the ceiling is reached, the next good setup has to wait for an existing position to close or tighten.
- Realized loss can exceed heat. Stops become market orders when triggered, so an adverse fill assumption belongs in any worst-case figure.
- The recovery arithmetic runs on the loss, not the risk budget. Losing 12% requires a 13.6% gain to get back, and the requirement accelerates from there.
What Is Portfolio Heat?
Portfolio heat is the total open risk across all live positions, measured as a percentage of account equity. It exists because per-trade sizing is a local rule with a global consequence that the rule itself cannot see.
Consider an account applying a strict 1% risk limit to every trade. The rule is followed perfectly. Eight setups appear over two weeks and all eight are taken. The account now has 8% of its equity behind stops, and if the market delivers one broadly negative session, the 1% rule offers no protection at all against the 8% outcome. Nothing was violated. The rule simply never asked the portfolio-level question.
Portfolio heat = sum of (|entry - stop| x shares) across all open positions, divided by account equity
Simple addition is the conservative choice here, and deliberately so. It assumes every stop fills, on the same day, with no offsetting winners. Real outcomes are usually better than that, because positions do not all fail together. The point of computing the figure is precisely that the exception matters more than the average: the sessions when everything does fail together are the sessions that end accounts.
Heat Versus Exposure: Two Different Numbers
A brokerage statement shows exposure. It does not show heat, and the gap between them is often large enough to be misread in either direction.
| Measure | Formula | Question it answers |
|---|---|---|
| Exposure | Sum of (entry price x shares) | How much capital moves with the market |
| Heat (open risk) | Sum of (|entry - stop| x shares) | How much is lost if every stop fills at its stop price |
| Maximum loss | Heat, plus assumed adverse fill on every stop | How much is lost if the stops fill in a disorderly market |
An account 65% exposed with 2.5% heat is not taking small risk because it is under-invested. It is taking small risk because the stops are close. Widen every stop and heat triples while exposure is unchanged. That is why heat, not exposure, is the number a position-limit rule should govern.
The relationship also breaks in a specific and dangerous way. Heat assumes the stop is reachable. In an overnight gap, price passes the stop without trading there, and the loss is set by the opening print instead. When that happens, exposure, not heat, becomes the number that describes the damage. The slippage input on this calculator is a crude but honest way to keep that possibility visible.
Why Correlated Positions Are One Position
The SEC's asset-allocation guidance makes the underlying point in plain language: the conditions that hurt one asset class can improve returns in another, which is what gives diversification its value. The inverse is the warning. Holdings that respond to the same condition do not diversify anything, however many tickers they occupy.
Six positions in different semiconductor names, sized independently at 1% each, look like six diversified trades on a statement and behave like one 6% trade on a day the sector sells off. The stop plan is intact, the per-trade rule was followed, and the account still loses 6%.
This calculator handles that with an explicit correlation group label rather than a correlation estimate. Positions the reader assigns to the same group are summed as though they were perfectly correlated, which is the conservative reading and requires no assumption about a correlation coefficient that will not hold in a selloff anyway. To model partial correlation properly, with volatilities and pairwise coefficients, use the Correlation Risk Analyzer.
Common mistake: grouping by sector label only. The driver that matters is often not the sector: a long in an airline, a short in an energy producer, and a position in a transport ETF can all be one bet on the oil price wearing three different sector tags.
Portfolio Heat and Maximum Loss Calculator
Enter account equity, a heat ceiling, and each open position. The group label is free text: any positions sharing a label are totaled together as a correlated cluster. Slippage is applied to every stop as a percentage of the stop price to produce the maximum-loss figure.
All calculations run in your browser. Values you enter are not sent to Swoopr Investment's servers, stored, or logged.
Worked Example: Three Positions on a $20,000 Account
Three open positions, two of them in the same correlated group.
| Position | Entry | Stop | Shares | Group | Open risk |
|---|---|---|---|---|---|
| AAA (long) | $50.00 | $48.00 | 100 | Tech | $200.00 |
| BBB (long) | $100.00 | $97.00 | 50 | Tech | $150.00 |
| CCC (short) | $30.00 | $31.50 | 100 | Energy | $150.00 |
Total open risk = $200 + $150 + $150 = $500.00
Portfolio heat = $500 / $20,000 = 2.50%
Tech group risk = $200 + $150 = $350.00 (1.75%)
Total exposure = $5,000 + $5,000 + $3,000 = $13,000 (65.0%)Two readings sit inside those four lines. Heat is 2.5%, comfortably under a 6% ceiling, leaving $700 of budget for further positions. But 70% of the total risk sits in the Tech group, so the diversification implied by holding three positions instead of one is mostly notional. A sector move takes 1.75% of the account, not 2.5%, and the third position contributes almost nothing to offsetting it.
Now add a 1% assumed slippage on every stop. The realized loss becomes $628 rather than $500, or 3.14% instead of 2.5%. That is a 25.6% overshoot of the planned figure, produced by a slippage assumption most traders would call modest.
What This Calculator Does Not Model
- Partial correlation. Group totals assume perfect correlation inside a group and zero correlation between groups. Both are simplifications. Real correlations sit in between and rise during broad selloffs.
- Gaps and halts. A stop that price jumps over does not fill at the stop. The slippage input approximates this crudely and cannot represent a genuine gap event.
- Offsetting winners. The maximum-loss figure assumes no position closes profitably. A real bad day usually includes some.
- Costs. Commission and spread are excluded from every figure.
- Leverage and margin calls. Exposure above account equity implies borrowing. FINRA Rule 4210 governs the maintenance requirements behind that, and a forced liquidation can close positions at prices unrelated to any stop.
- Options, futures, and multipliers. Risk is computed per share. Contract multipliers, assignment risk, and non-linear payoffs are outside the model.
- Overnight and event risk. Earnings, halts, and news gaps are not represented.
Nothing here is a recommendation about how many positions to hold, what heat ceiling to adopt, or whether any position should be opened, trimmed, or closed.
Frequently Asked Questions
What is portfolio heat?
Portfolio heat is the sum of the open risk across every position currently held, expressed as a percentage of account equity. Open risk on a single position is the distance from entry to stop, multiplied by the share count. Adding those figures across all open positions answers a question that per-trade sizing cannot: if every stop triggered on the same day, how much of the account would be gone. A portfolio of eight positions each risking 1% carries 8% heat, not 1%.
How do you calculate total portfolio risk?
For each open position, compute risk per share as the absolute difference between the entry price and the stop price, then multiply by the number of shares held. Sum those dollar figures across every position and divide by account equity to express the total as a percentage. That percentage is portfolio heat. Grouping positions that would move together, by sector, factor, or underlying driver, and summing within each group shows how much of the total sits in a single correlated cluster.
What is a reasonable maximum portfolio heat?
This calculator takes the limit as an input rather than prescribing one, because the appropriate figure depends on strategy, holding period, correlation across holdings, and personal circumstances no general page can know. What the arithmetic shows is the trade-off: a lower ceiling caps the bad day but forces positions to be turned down or trimmed once the budget is used, while a higher ceiling allows more simultaneous exposure and a correspondingly larger loss when correlations converge on 1.
Is portfolio heat the same as total exposure?
No, and confusing them is the most common error on this topic. Exposure is the market value of the positions, which is what a broker statement shows. Heat is the amount that would be lost if every stop filled, which is usually a small fraction of exposure. A portfolio can be 80% exposed while carrying 4% heat. The two diverge sharply, and they answer different questions: exposure describes how much moves with the market, heat describes how much is actually at stake under the stop plan.
How does correlation change portfolio risk?
Heat computed by simple addition already assumes the worst case, that everything stops out together. The reason correlation still matters is that it determines how close reality gets to that worst case. Independent positions rarely all fail at once, so realized loss lands well below total heat. Positions driven by one factor behave like a single larger position, so the correlated-group total, not the per-position figure, is the number that describes the real bad day. The SEC's asset-allocation guidance makes the same point about market conditions affecting whole asset classes at once.
Why does the calculator ask about slippage?
Because a stop order is a trigger, not a guaranteed price. Once the stop price trades, the order becomes a market order and fills at whatever is available, which in a gap or a fast decline can be materially worse. Applying an assumed adverse fill to every stop shows the difference between planned loss and a plausible realized loss. On a portfolio where several stops trigger during the same disorderly session, that difference compounds across positions rather than affecting just one.
What happens to portfolio heat when a stop is moved to break even?
The position's contribution to heat falls to approximately zero, because the distance between the current stop and the entry price no longer represents a loss. That frees capacity for another position under the same total ceiling, which is the mechanical reason trailing stops allow more concurrent positions. The caveat is that a break-even stop is not a guaranteed exit at that price, so the released capacity assumes an orderly market rather than a gap through the level.
How should a position with no stop be entered?
With an assumed exit level rather than omitted, since a position without a defined exit still carries risk and leaving it out reports a heat figure lower than the account's actual exposure. A common convention is to enter the level at which the position would be abandoned, or a percentage decline treated as the practical maximum. Whatever is chosen, recording it makes the assumption visible instead of leaving the position silently uncounted.
Does heat include positions held in a separate account?
It should, when the accounts share an owner and a purpose, because risk aggregates across them regardless of how they are administered. Two accounts each sitting comfortably within a heat ceiling can hold correlated positions that together exceed what either would allow. The complication is the denominator: heat is expressed against equity, so combining positions requires combining the equity as well rather than measuring each position against the account it happens to sit in.
References
Diversification and order-mechanics claims are sourced to U.S. regulator and self-regulatory-organization publications, verified in August 2026. Every figure in the worked example is computed from the inputs shown; no statistic on this page is estimated or drawn from an external dataset.
- SEC Investor.gov: Asset Allocation and Diversification: the SEC's investor-education treatment of spreading risk across asset categories, and the source for the point that conditions harming one asset class can help another.
- SEC Investor.gov: Types of Orders: the description of how a stop order becomes a market order once triggered, which is why realized loss can exceed planned heat.
- FINRA: Rule 4210, Margin Requirements: the initial and maintenance margin rules that apply once total exposure exceeds account equity, and the mechanism behind a forced liquidation.
- FINRA: Order Types: FINRA's parallel order-type guidance, including stop-limit orders and the fill-certainty trade-off they make.
Jurisdiction: United States. Last reviewed by the Swoopr Editorial Team in August 2026. This page is educational and is not personalized investment advice. Trading involves the risk of loss, including loss of the entire amount invested.