Watch out for open losses - FTMO
Trading Tips

Watch out for open losses

Although we have been offering our FTMO Accounts to retail traders for several years now, there are still many who do not understand the principle of Maximum Daily Loss. The following example will show why traders should be careful about open positions and why it is more important for traders to monitor rather the Equity curve than the Balance curve.

We try to explain our Trading Objectives to all our potential traders as regularly as possible, but there are still traders who do not fully understand the principle of the Maximum Daily Loss rule. Unfortunately, this is then compounded by a failure to comply with the terms of the Evaluation Process. The best way to explain this is with a specific example. The trader in the example below traded quite a lot of positions and even met our required Profit Target with his last trade.

He could be using a trend-following system strategy, waiting for suitable break-outs. These trading systems typically may experience many small losses over a period of time, but when the trade is successful, the profits are usually really high. However, it is also very important for us to keep track of how the trade was performing over time.

If we were not tracking open losses, we could consider this Verification passed and the trader would be allowed to trade on the FTMO Account.

However, when we look at the open losses, we find a very interesting thing. This trader reached a floating loss of -$71,096 just before the end of his Verification, which for a $200,000 account is a -35.54% loss. And that's a lot for any trader, not just the one trying to get an FTMO Account.

As you can see, the trader had a Verification with an unlimited trading period, so he did not have to rush anywhere to pass it (the same goes for any newly purchased FTMO Challenge). It is therefore completely unnecessary to open large positions without entering a Stop Loss (which is unfortunately the case here). Such an approach often shows the trader lacks discipline, does not follow risk management rules, and probably does not take trading as a serious way of making money. Combine all of that together and it becomes very likely that in the event of an unforeseen move, the assets in the account may fall beyond the Maximum Daily Loss. And this does not only apply to an FTMO Challenge or Verification, a trader can similarly lose an FTMO Account unnecessarily.

We often encounter beginner traders arguing that they were sure the market would definitely turn in their favour and that they don't understand why the rules in their FTMO Challenge or Verification are broken. We hope this article makes it clear that no investor should ever look only at their balance curve showing closed positions, but their equity curve.

For these reasons, we must also warn potential traders that we do not consider statements from MetaTrader because they do not show the progress of trades in the form of an equity curve.

At FTMO, we understand that market conditions might vary and that’s why we offer our traders a generous 10% Maximum Loss buffer and 5% Maximum Daily Loss. These conditions are in a ratio of 1:1 (loss to profit), which is the top industry standard. Our major aim is to cooperate with experienced traders. And that’s also why we introduced the above risk parameters that should make them feel comfortable.

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