7/27/25, 6:31 PM Risk Management Metrics | PrimeTrading
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Risk Management Metrics
In the trading world, success isn’t just about finding winning trades—it’s
about managing risk effectively to preserve and grow capital over the long
term. Many traders overlook the importance of structured risk management,
often focusing too heavily on gains without a clear plan for mitigating losses.
In this article, I’ll Walk you through the key metrics I use to manage portfolio
risk, covering strategies that have proven crucial in my trading and what I
teach within the PrimeTrading community.
These metrics offer a clear framework for tracking and adapting to market
conditions, allowing traders to know when to push forward aggressively and
when to hold back.
By understanding concepts like Daily Exposure, New Exposure, and Open
Exposure, traders gain insight into their portfolio’s risk at each stage, helping
to maintain balanced exposure even as market conditions fluctuate.
Daily Exposure (DE)
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7/27/25, 6:31 PM Risk Management Metrics | PrimeTrading
DER (Daily Exposure Risk)
Daily Exposure Risk (DER) is the percentage of Equity Capital (%EC) at risk
on the current day due to new positions. It’s used to assess the immediate
risk taken on daily trades. If DER metrics show consecutive small losses (e.g.,
-0.25%, -0.35%), it signals a need to halt new trades to prevent overtrading
in unfavorable market conditions.
DEP (Daily Exposure Profit)
Daily Exposure Profit (DEP) represents the %EC gain from new positions
taken on the current day. DEP indicates if new positions are gaining traction
and allows assessment of profitability in intraday trading. Positive DEP
signifies favorable market alignment with these trades.
Delta
Delta DER/DEP tracks the change in both Daily Exposure Risk and Daily
Exposure Profit throughout the day. For instance, if Delta DER begins to
increase negatively, it indicates rising risk exposure, suggesting it may be
time to reduce or close positions. Conversely, if Delta DEP shows positive
movement, it signals gains from daily trades, reinforcing the decision to
continue trading that day.
New Exposure (NE)
NER (New Exposure Risk)
New Exposure Risk (NER) reflects the cumulative risk on positions opened in
recent days for which risk has not yet been “financed” through trimming at
set profit multiples (R multiples) or by raising stop losses (SLs) to secure
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gains. NER is calculated based on the potential loss from these open,
unfinanced trades if each trade hits its stop loss. This metric ensures that risk
is managed progressively as positions mature and are either trimmed or their
SLs adjusted to reduce exposure.
Example: Suppose a recent position was opened with a -0.25% EC risk
based on entry and stop loss. If three such positions from recent days are
still unfinanced, NER totals -0.75% EC. This cap on unfinanced exposure
provides a controlled way to manage potential risk if all recent trades were
stopped out.
NEP (New Exposure Profit)
New Exposure Profit (NEP) represents the unrealized gains from these
recent, unfinanced positions. NEP tracks profitability potential and provides
critical feedback on the traction of new buys, indicating if the current market
environment supports continued aggressive positioning. When NEP trends
positively, it suggests that recent positions are gaining ground, justifying
further exposure. Conversely, a consistently negative NEP may signal the
need to step back, avoid new positions, or reduce exposure until conditions
improve.
Delta
Delta NER/NEP shows the real-time change in risk or profit levels for these
unfinanced positions. A rising Delta NEP indicates increasing profitability,
reinforcing the decision to open new positions. A positive Delta NEP signals
adequate traction, while a negative Delta NEP or rising Delta NER would
suggest stepping back to avoid compounding risks.
Open Exposure (OE)
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OER (Open Exposure Risk) – also known as Open
Heat
Open Exposure Risk (OER), also referred to as Open Heat, represents the
unrealizedPrimeTrading
risk on all current open positions if each were to hit its stop loss.
OER reflects the downside exposure still present in open trades and serves
as a measure of portfolio vulnerability. By managing Open Heat, I can assess
whether the cumulative exposure across active positions aligns with overall
risk tolerance.
Example: If each open position has a -0.2% EC risk, and there are five open
positions, OER (Open Heat) would total -1% EC. Monitoring Open Heat allows
me to control risk from ongoing positions, signaling when it might be prudent
to adjust stop levels or trim positions to keep overall exposure manageable.
OEP (Open Exposure Profit)
Open Exposure Profit (OEP) reflects the total unrealized gains on all open
positions, including profits from trims. OEP shows the current profit potential
of active trades and indicates whether there’s sufficient traction across the
portfolio to maintain or add exposure.
Example: If a position has a $100 unrealized profit and a $200 profit from
trims, the OEP for that position is $300. Across multiple positions, this metric
consolidates total open profitability, offering a snapshot of the portfolio’s
unclosed gains.
Delta (Secured Profits)
Delta OER/OEP tracks real-time fluctuations in both Open Exposure Risk
(Open Heat) and Open Exposure Profit. A positive Delta OEP reflects
improving profitability in open positions, supporting a decision to hold or
expand exposure. An increasing Delta OER (Open Heat), however, indicates
rising risk across the portfolio, signaling a need for caution. This metric helps
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in dynamically adjusting stops or taking partial profits to balance profitability
with controlled exposure.
Conclusion
Effective portfolio management is not about guessing market moves but
consistent, disciplined risk control. By implementing metrics like Daily
Exposure Risk (DER), New Exposure Risk (NER), and Open Exposure Risk
(OER), traders can manage their capital with precision, securing gains while
minimizing downside risk.
Each metric serves a distinct purpose, from measuring immediate risks to
understanding long-term exposure and providing a robust toolkit for making
informed decisions.
In PrimeTrading, we focus on building these skills to create a sustainable
approach to trading. When traders use these metrics as a guide, they
develop an edge rooted in risk management rather than mere prediction. By
incorporating these metrics, I hope you’ll find yourself better equipped to
navigate the markets confidently, knowing that every trade aligns with a
broader, controlled growth and capital preservation strategy.
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