Open equity is what your broker shows on the screen: cash, realised results, and every open position marked to market. Sizing off it is standard for systematic and futures programmes, where positions are marked daily anyway.
It compounds faster during trends because winners fund larger new positions, and it de-levers faster during losing streaks because paper losses cut size immediately. The cost is reflexivity: a portfolio that is up 12% on open trades is also at its largest exactly when a correlated reversal would hurt most.
The honest middle ground, used by many managers, is to size on open equity but cap the uplift - for example, never size on more than closed equity plus half the open profit - and to enforce a separate max-open-risk ceiling so the book cannot inflate regardless of marks.
Related: sizing-on-closed-equity, max-open-risk