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Closed versus open equity

The difference between realised account value and the value including unrealised profit and loss, which is the base every sizing rule must pick.

Closed equity counts only completed trades. Open equity - sometimes called total or mark-to-market equity - includes what the live positions are currently worth. On a day with big open winners the two numbers can differ by 10% or more, and every percentage-based rule inherits that difference.

The consequence is compounding behaviour. Sizing off open equity grows positions faster in a winning run and cuts them faster when open profit evaporates, which increases both return and sequence-risk. Sizing off closed equity is steadier and slightly slower. Neither is wrong; using whichever is larger at the moment is.

Write the choice into the plan and apply it to every rule at once - sizing, max-open-risk, loss limits and the high-water-mark. Mixed bases are how traders accidentally run 30% hotter than they believe.

Related: sizing-on-closed-equity, sizing-on-open-equity, high-water-mark, sequence-risk

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

How a position size is worked outAccount size, risk per trade and stop distance feed into one box giving the number of shares.ACCOUNT SIZE$25,000your capitalRISK PER TRADE1%of the accountSTOP DISTANCE$0.50entry to stopPOSITION SIZE500 sharesrisk budget: $25,000 × 1% = $250position size: $250 ÷ $0.50 = 500 shares
Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.

Educational only, not advice. Spotted an error? Post in Site Feedback.