Question 1

What is portfolio risk vs per-trade risk?

Accepted Answer

Per-trade risk is the loss on a single position if stopped out. Portfolio risk is the combined loss if all open positions hit their stop losses simultaneously — which can happen in correlated market crashes. Both must be managed.

Question 2

How much total portfolio risk is acceptable?

Accepted Answer

Many risk management frameworks suggest capping total portfolio risk at 5–10% of account value. Van Tharp's widely cited work suggests 6% as a maximum across all open positions. Exceeding this in correlated positions creates significant blowup risk.

Question 3

What is correlation risk in a portfolio?

Accepted Answer

Correlated positions move together — e.g. long EUR/USD and short USD/CHF both benefit from USD weakness. If multiple positions are correlated, a single market event can trigger all stop losses simultaneously, multiplying the actual dollar loss beyond what per-trade risk suggests.

Question 4

How should I account for correlated positions?

Accepted Answer

Treat correlated positions as a single position for risk purposes. If two trades have 80%+ correlation, the combined risk should not exceed your single-trade risk limit. This calculator shows total dollar risk — you must assess correlation manually based on your specific positions.

Portfolio Risk Calculator