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RISK · PORTFOLIO HEAT RULE

Portfolio Heat in Crypto: When the Common Rule Produces a Misleading Result

'Keep total heat under 4%' counts stop distances. Gaps through stops and correlated moves can make the real loss much larger.

By ChartsPod Editorial Team · Reviewed by ChartsPod Research
Published · Updated · 5 min read

Short answer

Portfolio heat sums the loss at each stop. It assumes stops fill near their prices and positions stop independently. In a fast, correlated sell-off, all positions can hit stops together with slippage, and gaps can fill well beyond. A 3% heat portfolio of five correlated longs could lose 5–7% in a cascade with 1–2% extra slippage per position. Add a stress scenario — all stops plus slippage, or a fixed percentage gap — to the heat calculation.

Worked example

StepValue
Heat (stops)3.0%
Extra slippage per position0.3–0.8% of equity in total
Gap scenarioStops filled 2% beyond
Stress loss≈ 5–7%
Plan toStress loss, not just heat
Loss estimates (% of equity)Loss estimates (% of equity): Heat 3.0 %; Heat + slippage 3.8 %; Gap scenario 6.2 %.LOSS ESTIMATES (% OF EQUITY)Heat3.0 %Heat + slippage3.8 %Gap scenario6.2 %
Illustrative stress cases. Original ChartsPod editorial graphic.

Stress scenario

Beyond heatBeyond heat: Correlated stop-outs; Slippage per stop; Gap beyond stops; Liquidation distances; Fees.BEYOND HEATCorrelated stop-outsSlippage per stopGap beyond stopsLiquidation distancesFees
Heat is the best case. Original ChartsPod editorial graphic.

Heat calculation: Portfolio Heat: A Worked Crypto Example With Fees Included.

Conclusion

Related: Portfolio Heat: A Worked Crypto Example With Fees Included, Liquidation Cascades in Crypto: How to Read the Data With Price Context.

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Portfolio heat sums the loss at each stop.

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Questions readers ask

Is portfolio heat my maximum loss?

Not in gaps or correlated sell-offs.

What should I add?

A stress scenario.

How big can the gap be?

Measure from past cascades.

Sources and methodology

Arithmetic uses standard sizing formulas. Fee rates (0.05% taker, 0.02% maker), slippage and funding values are illustrative; check your venue's schedule. Liquidation figures are simplified approximations; exchanges calculate them with their own maintenance-margin rules (see Bybit's documentation).

  1. Bybit: Liquidation process — mark price and margin modes.
  2. ChartsPod: product overview, pricing and FAQ — free terminal, venues, modules, no order placement; checked 17 Oct 2026.

This article explains research tools and workflows. It is not financial advice, does not recommend buying or selling any asset and does not predict prices. Crypto derivatives carry a risk of rapid and total loss of margin.

CHARTSPOD EDITORIAL EDITION · RESEARCH AND EDUCATION ONLY · NOT FINANCIAL ADVICE.