Equity

Equity is the real-time value of a trading account, including both the deposited funds and the unrealised profit or loss from open positions.

It represents the account's true current value at any given moment, not just the cash balance.

 Core Concept

Equity changes continuously as market prices move.

• If open trades are in profit → equity increases
• If open trades are in loss → equity decreases

 Formula

Equity = Balance + Floating Profit/Loss

Key Components

• Balance: Closed trade results (realised profit/loss)
• Floating Profit/Loss: Unrealised gains or losses from open trades
• Equity: Total account value at current market prices

Practical Example

• Account Balance: $1,000
• Open Trade Profit: +$200
• Equity = $1,200

• Account Balance: $1,000
• Open Trade Loss: -$300
• Equity = $700

 Why Equity Matters

Equity is used to calculate:

• Free Margin
• Margin Level
• Account risk exposure
• Ability to open new trades

 Equity vs Balance

Balance is static; equity is dynamic.

 Relationship with Risk Metrics

• Equity increases → Free Margin increases
• Equity decreases → Margin Level drops
• Low equity can lead to margin call or stop-out

 Common Misunderstandings

• Thinking balance reflects current account value
• Ignoring floating losses when assessing account health
• Confusing equity with available cash

 Best Practices

• Always monitor equity, not just balance
• Use equity to assess real-time risk exposure
• Control floating losses with stop-loss orders
• Avoid overleveraging when equity fluctuates heavily

Key Takeaways

• Equity = true live value of a trading account
• It includes both realized and unrealized P/L
• It is the foundation for calculating margin and risk levels
• Monitoring equity is essential for account survival and risk control