Equity is one of the most important account metrics in forex trading. It represents the real-time value of your trading account, fluctuating as your open trades gain or lose value.
1. What is Equity?
✔ Equity is the current value of your trading account
✔ It represents the sum of your Balance and any Floating (Unrealized) P/L
✔ If you have no open trades, your Equity = Balance
✔ If you have open trades, Equity fluctuates based on price movements
💡 Think of Equity as your “real-time” account value. Unlike Balance, which shows only closed trades, Equity includes the value of active trades.
2. How to Calculate Equity
✔ Formula:
📌 Equity = Balance + Floating Profit/Loss
Example 1: No Open Trades (Equity = Balance)
🔹 You deposit: $1,000
🔹 No open positions
📌 Calculation:
✔ Equity = $1,000 + $0
✔ Equity = $1,000
📢 Since there are no open trades, Equity = Balance.
Example 2: Open Trade with a Floating Loss
🔹 You deposit: $1,000
🔹 You open a trade that is currently at a -$50 Floating Loss
📌 Calculation:
✔ Equity = $1,000 + (-$50)
✔ Equity = $950
📢 Equity has dropped due to the floating loss.
Example 3: Open Trade with a Floating Profit
🔹 You deposit: $1,000
🔹 You open a trade that is currently at a +$100 Floating Profit
📌 Calculation:
✔ Equity = $1,000 + $100
✔ Equity = $1,100
📢 Equity has increased due to the floating profit.
3. Difference Between Balance and Equity
| Metric | Definition | Changes with Open Trades? |
|---|---|---|
| Balance | The cash amount in your trading account. | ❌ No |
| Equity | The real-time value of your account, including open trades. | ✅ Yes |
📌 Key Takeaway:
✔ Equity includes floating P/L, while Balance does not.
4. Why is Equity Important?
✔ Determines how much Free Margin you have available.
✔ Helps track real-time account value and risk exposure.
✔ If Equity drops too low, it can lead to a Margin Call or Stop Out.
5. Key Takeaways
✔ Equity = Balance + Floating P/L
✔ It fluctuates with the market if you have open trades.
✔ Equity reflects your real-time account value and risk exposure.
✔ If Equity gets too low, you risk a Margin Call!
Understanding Equity is critical for risk management and preventing your account from being wiped out. Next, let’s dive into Free Margin and Margin Level! 🚀📉
