Direct answer
Total Open Risk is a single risk figure that aggregates the potential loss impact across all currently open positions in one account. A worked example makes it easier to explain by choosing simple assumptions (such as a fixed pip value and an assumed stop distance) and then calculating the combined risk for multiple trades.
Mechanism or definition
A clear, verifiable way to explain Total Open Risk is to define it as a sum of per-position risk estimates. The key idea is “risk of what is already open,” not risk based on hypothetical future trades.
Working definitions used in the example
To keep the example self-contained, this article uses stable mechanics that do not require real-time prices:
- Open positions: trades you already entered and that are still active.
- Risk per position (estimated): the account loss you would incur if price moves to a reference level you choose (commonly a stop level) and fills at that level.
- Total Open Risk: the sum of estimated risk across all open positions in the account.
Inputs you must choose (assumptions)
Because Total Open Risk is not a single universally standardized formula, any worked example must state assumptions. Typical inputs include:
- Position sizes (e.g., in units, lots, or notional exposure).
- Stop distance (difference between entry and the reference level, measured in pips or price points).
- Pip value / point value in account currency (used to convert movement into money).
- Whether you treat each trade independently or assume offsets (for example, if two positions hedge each other, you may or may not net risk).
In this worked example, we avoid netting complexity by assuming you sum risk magnitudes across positions.
Evidence or example (worked numbers)
Assume the account has two open forex positions.
Assumptions for both positions
- Account currency is USD.
- Each position uses a stop distance measured in pips.
- Pip value is constant for the example and already expressed in USD per pip.
- Execution occurs exactly at the reference level, with no slippage.
- We sum risk estimates across positions (no netting).
Position A
- Position size: such that pip value = $10 per pip.
- Stop distance: 20 pips.
- Estimated risk for Position A:
- $10/pip × 20 pips = $200
Position B
- Position size: such that pip value = $8 per pip.
- Stop distance: 30 pips.
- Estimated risk for Position B:
- $8/pip × 30 pips = $240
Total Open Risk
- Total Open Risk = risk(A) + risk(B)
- Total Open Risk = $200 + $240 = $440
How you should interpret the result
This $440 figure is an estimate of the account impact if each position reaches its reference level under the specific assumptions. It is not a prediction of market direction, and it depends on your chosen stop/reference level and conversion assumptions.
Limitations and risks (material failure modes)
- Stop-reference mismatch: If the reference level used in your calculation does not match what will actually happen (for example, because the stop is not the true risk boundary), Total Open Risk becomes less meaningful.
- Slippage and execution gaps: In fast markets, fills may occur worse than the reference price. The example assumed perfect fills, so real losses can exceed the estimate.
- Cost and spread effects: Transaction costs (spread, commission, financing/rollover) can change the effective loss compared with a pure pip-distance model.
- Hedging and netting ambiguity: If you have offsetting positions, some methods net exposure while others sum it. Using the wrong method can overstate or understate risk.
- Unit and pip-value errors: Pip value depends on the instrument contract details and account currency. If the conversion is wrong or changes with conditions, the numerical result can be inaccurate.
- Time sensitivity: If positions are modified (size, stops, leverage) after you calculate, the number no longer matches reality.
Verification or next question
To independently verify your own Total Open Risk explanation:
- Recreate the calculation with your inputs (pip values, stop distances, and your chosen netting rule).
- Confirm you are aggregating only open positions.
- Check that your pip/point-to-currency conversion matches the instrument contract and account currency.
A useful next question is: **What netting rule is being used—sum of magnitudes or netted exposure?