Open Trade Equity (OTE)

What is OTE?

Open Trade Equity (OTE) is the unrealized gain or loss on open positions — the difference between the current market value and the price at which the position was opened. It represents paper gains or losses that will only become realized when the position is closed.

OTE is marked-to-market, so it gives a real-time view of how much equity an account would have if all open positions were closed at prevailing prices.

How OTE affects account equity

Account equity = cash account balance + OTE (unrealized P&L)

For margin accounts, OTE directly affects available equity and whether an account meets maintenance margin requirements. Large negative OTE can trigger a margin call, forcing the investor to deposit funds or have positions liquidated by the broker.

Simple example

• Initial trade: $10,000 cash used to buy 50 shares at $200 → OTE = $0 at execution; account equity = $10,000.
• Price rises to $250: unrealized gain = (250 − 200) × 50 = $2,500 → OTE = +$2,500; account equity = $12,500.
• Price later drops to $100: unrealized loss = (100 − 200) × 50 = −$5,000 → OTE = −$5,000; account equity = $5,000.

OTE positive → paper gain. OTE negative → paper loss.

OTE and margin calls (numeric example)

Regulators such as FINRA set minimum rules (for example, minimum initial margin), but brokers set specific initial and maintenance margin percentages.

Example:
– Buy 500 shares at $20 = $10,000 position.
– Investor deposits $5,000 and borrows $5,000 (50% initial margin).
– Maintenance margin set at 35%.

If the stock falls to $12:
– Position value = 500 × $12 = $6,000.
– Outstanding loan = $5,000 → equity = $6,000 − $5,000 = $1,000.
– Maintenance requirement = 35% × $6,000 = $2,100.
– Shortfall = $2,100 − $1,000 = $1,100 → margin call for $1,100 (or partial liquidation).

If the investor cannot meet the call, the broker may liquidate positions to restore the required equity.

How traders use OTE

• Real-time performance: OTE shows current profit/loss before closing positions.
• Risk management: Monitoring OTE helps avoid margin calls and manage leverage.
• Position sizing: OTE informs whether unrealized losses are eroding account equity beyond acceptable limits.
• Decision making: Traders use OTE combined with stop-losses, hedging, or partial profit-taking to manage unrealized risk.

Practical tips

• Maintain a buffer above maintenance margin to absorb normal market volatility.
• Track OTE continuously for leveraged and derivatives positions (which can swing rapidly).
• Use stop-loss or hedging strategies to limit large adverse OTE swings.
• Avoid over-concentration in a single position that could produce large negative OTE relative to account equity.

Key takeaways

• OTE = unrealized gain or loss on open positions; it becomes realized when positions are closed.
• It is essential for understanding real-time account equity, especially in margin accounts.
• Negative OTE can trigger margin calls; brokers can liquidate positions if margin requirements aren’t met.
• Regularly monitoring and managing OTE helps control leverage risk and preserve capital.