Risk & position sizing
How do I calculate my portfolio's structural Value at Risk (VaR)?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Value at Risk (VaR) estimates the maximum expected loss on a portfolio over a given time period at a certain confidence level, such as a 95% chance losses won't exceed a stated amount in one day.
How it works
VaR is typically calculated using historical returns, variance-covariance methods, or Monte Carlo simulation, giving a statistical boundary rather than an absolute worst-case outcome.
An example
A portfolio with a one-day 95% VaR of $5,000 implies there's a 5% chance of losing more than $5,000 in a single trading day under normal conditions.
Risk & limitations
VaR models rely on historical data and assumptions that often break down during extreme market events, understating risk during crises like 2008 or 2020.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.