Equity is the real-time value of your trading account if all open positions were closed at current market prices. It equals your account balance plus any floating profits or losses from active trades.
How Equity Works
Your account equity changes constantly as the market moves. When a trade is in your favor, equity increases; when against you, it decreases. The calculation is straightforward: Equity = Account Balance + Floating Profit/Loss.
Equity differs from your account balance, which remains static until you close a position. This distinction is critical because margin requirements and stop-out levels are based on equity, not balance.
Why Equity Matters for Trading
Equity determines how much free margin you have available for new trades. If equity falls below a certain threshold relative to your margin requirement, your broker may close positions automatically to prevent further losses — called a margin call. Tracking equity is essential for risk management.
Market volatility and leverage both affect equity rapidly. A sharp move against your position erodes equity quickly, especially with high leverage. This makes position sizing and stop losses critical to account survival.
Equity vs. Related Metrics
| Metric | Definition | When It Changes |
|---|---|---|
| Equity | Account balance + floating P/L | Market moves; positions open or close |
| Balance | Actual cash in your account | Only when positions close or funds are deposited/withdrawn |
| Margin | Funds needed to maintain open positions | When positions are opened or closed |
| Free Margin | Equity available for new trades | Market moves; margin requirements change |
