Why do we care about open losses?

In the following example, we will look at why it’s so important for investors to monitor the open losses. This trader has never crossed the Maximum loss on his closed positions. His last trade has even hit the desired Profit Target. We might assume that this trader observes the trend following system where he awaits breakouts. These trading strategies have something in common. They often have a higher amount of smaller losses, but then the potential profits are really high. If we were not following the open losses, we could consider this Verification being successful and the trader would normally advance into the FTMO Account.

However, if we look into the open losses, we observe an interesting phenomenon. This trader actually had 92,6% of his account in the floating losses, probably hoping that the market conditions could reverse his losses one day. Or not… His deepest open (floating) loss at one point in time was -2419,73 EUR on the 10,000 EUR Verification. In one moment, the trader’s Equity was as low as 7580,27 EUR, down from the initial 10,000 EUR.

Very often we experience beginner traders complaining with the argument that the market conditions will eventually change and so why is their FTMO Challenge or Verification marked as violated? In other words, if a trader doesn’t have proper control of his account Equity and risks taken, he/she probably does not have enough discipline to treat trading as a serious business.

We hope this short article clearly explains that no serious investor ever observes the Balance curve that displays closed trades only, but the current assets in a form of an Equity curve.

For the above reasons, investors also don’t accept platform statements, myFXbook statements or other external sources that don’t track the detailed progress of the Equity curve and the reliability isn’t always assured.

At FTMO, we understand that market conditions might vary and that’s why we offer our traders a generous 10% drawdown buffer and 5% max daily loss. These conditions are in a ratio of 1:1 (loss to profit) and this is probably the best environment out there. Our major aim is that our traders are successful and that’s also why we introduced the above risk parameters that should keep traders in a game.