Definition and purpose of Total Open Risk
Total Open Risk is a single, account-level measure of how much a trader’s currently open positions could lose if prices move against them by a specified amount. The goal is to summarize exposure across multiple trades, rather than evaluating each position in isolation.
Because it is based on open positions, Total Open Risk is dynamic: it changes as positions are opened, closed, partially closed, or hedged. It is also assumption-driven: the same set of open trades can produce different Total Open Risk values depending on the chosen reference move (for example, a certain price change) and the contract sizing used in the calculation.
How it works (mechanics and inputs)
To understand Total Open Risk, treat it as an aggregation step. Conceptually, you combine the “loss potential” of every open position into one number.
A typical mechanics flow looks like this:
- List all open positions on the account.
- For each position, express exposure in a consistent unit (often “loss for a defined adverse price move”).
- Sum the exposures across positions.
- Note whether positions offset each other. If two trades partially offset (for example, one benefits when the other loses), the net exposure is smaller than the raw, unoffset sum.
Assumptions matter. For example, if you calculate exposure using a hypothetical adverse price movement, you must state the size of that movement and apply it consistently to each instrument involved. You must also use the same method for converting contract values into a common currency if positions are not all quoted in the same way.
Material limitation: the “adverse move” assumption is not the same as actual future movement. Total Open Risk is a scenario-based accounting of exposure, not a prediction.
Scenario and impact: why aggregation changes what you feel is “safe”
A realistic situation is having several open positions that look harmless individually. For instance, you might have:
- Position A with a small potential loss if it goes against you.
- Position B with a small potential loss if it goes against you.
- Position C with a small potential loss if it goes against you.
Even if each position is individually limited, the account can still accumulate large exposure when those positions react similarly to the same market condition. In that case, Total Open Risk highlights the combined effect.
A second scenario is hedging. If your open positions offset each other, Total Open Risk may be lower than the sum of individual risks. This can change your assessment of exposure—but only for the assumptions used. If the market moves differently than expected or positions are not truly offset over the relevant price range, the net effect can be larger than the hedged calculation suggests.
Control point: when you review Total Open Risk, verify what it assumes (the reference move, the netting/offset approach, and the unit conversion). If those assumptions are unclear, the number is difficult to verify independently.
Limitations, risks, and what you can verify
Limitations
- Scenario dependence: Total Open Risk depends on the adverse move you assume, and on how you translate price movement into potential loss.
- Non-modeled costs: Real results can be affected by costs and trading mechanics that the simple exposure model may not include.
- Execution and gaps: In fast markets, fills may occur at worse prices than expected, and price gaps can move multiple steps beyond the reference move.
- Correlation changes: Relationships between instruments can shift, so offsetting positions may stop offsetting when the market regime changes.
Failure modes
- Double-counting risk: If you aggregate without considering offsetting exposure correctly, Total Open Risk can overstate exposure.
- Overconfidence from one number: A single exposure measure can hide differences in how positions behave (for example, different sensitivities to price changes).
Verification
You can independently verify Total Open Risk by recomputing it from the list of open positions using the same assumptions: reference price move, contract sizing, currency conversion method, and netting/offset rules. If any of those assumptions differ from the one used by your tool or platform, you may get a different result.