Watch out for open losses: Why Equity Matters More Than Balance

Although we have been offering our FTMO Accounts to retail traders for several years, we often see confusion around one of the most critical risk management metrics: the Maximum Daily Loss rule.

To pass the FTMO Challenge and trade successfully, it is essential to understand the difference between your account balance and your account equity and why your lowest equity is the only number that truly matters when managing risk.

What Is Equity and Why Is It Different from Balance?

To put it simply:

• Balance is your account’s value, only counting closed trades. It does not change while a trade is currently open and running.
• Equity is your real-time account value. It includes your balance plus the live, floating profit or loss of all your currently open trades.

If you have a $100,000 balance but your open trades are currently losing -$2,000, your real-time equity is $98,000. Equity is the true financial state of your account at any given second.

The Danger of Ignoring Open Losses (The Lowest Equity Concept)

We often see traders who use trend-following or breakout strategies. They might hold positions that dip heavily into the red before eventually bouncing back to close in profit.

While their balance curve looks great at the end of the day, their equity curve tells a different story. If we didn’t track open losses, a trader could hold a massive losing position, risk blowing the entire account, and still pass the Evaluation just because the trade eventually turned around.

This is why we focus on your lowest equity. The Maximum Daily Loss rule tracks the absolute lowest point your equity reaches during the day, even for a split second. If your floating (open) losses drag your real-time equity below your daily limit, the rule is violated, regardless of whether that trade later bounces back to a profit.

Why We Enforce This Rule

Opening large positions without a stop loss, hoping the market will “definitely turn around,” shows a lack of discipline and serious risk management problems. Relying on hope instead of a strict stop loss makes it highly likely that an unforeseen market event will wipe out the account.

By tracking your lowest equity, we ensure that traders aren’t taking reckless, hidden risks. It is a safeguard designed to build consistent, disciplined habits.

Know Your Limits

At FTMO, we understand that market conditions vary, which is why we provide a generous Maximum Loss buffer and Maximum Daily Loss limit. These rules are in place to help you manage risk and protect your capital.

Make sure you fully understand your specific Trading Objectives before opening a trade. For a detailed breakdown of how your limits are structured, please review the rules directly on our Trading Objectives page.

---

All information provided herein is intended solely for educational purposes related to trading on financial markets and does not constitute investment advice or serve in any way as a specific investment recommendation. Please read the full disclosure here.