Portfolio Heat

Risk Management

The total percentage of trading capital at risk across all open positions simultaneously. Keeping portfolio heat below a threshold (commonly 6-10%) prevents catastrophic loss during correlated drawdowns.

Related Terms

Position Sizing

Determining how many shares or contracts to trade based on account size and risk per trade.

Risk Management

The overall framework for limiting losses and protecting trading capital.

Drawdown

The peak-to-trough decline in an account or portfolio value, typically expressed as a percentage.

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Portfolio Heat & Correlation

Level 4: Risk & Money Management · 18 min