What is “Equity” in a Trading Account?
Equity represents the real-time value of your trading account. It constantly changes as the market moves and reflects the total value of your funds at any given moment.
When you look at your trading platform, Equity updates tick by tick based on the value of your open trades.
In simple terms:
Equity = Account Balance + Floating (Unrealized) Profit/Loss
If your trades are in profit, your Equity goes up. If they’re in a loss, your Equity drops accordingly.
Equity When You Have No Open Positions
If you don’t have any open trades, then your Equity is the same as your Balance.
✅ Example:
You deposit $1,000 into your account and haven’t placed any trades yet.
- Balance = $1,000
- Equity = $1,000
Since there are no floating profits or losses, both values are equal.
Equity With Open Trades
Once you open a position, Equity changes to reflect your floating profit or loss.
✅ Formula:
Equity = Balance + Floating P/L
Let’s break this down with a few examples.
Example: Floating Loss
You deposit $1,000 and follow Beyoncé’s tweet that she’s shorting GBP/USD. You short too.
Unfortunately, price moves against you, and your trade is now at a $50 floating loss.
- Balance = $1,000
- Equity = $1,000 + (-$50) = $950
So, your Equity has decreased to $950 due to the unrealized loss.
Example: Floating Profit
Beyoncé changes her mind and goes long on GBP/USD. You follow suit.
This time, price moves in your favor and your trade is now showing a $100 floating profit.
- Balance = $1,000
- Equity = $1,000 + $100 = $1,100
Your Equity has increased to $1,100, reflecting the unrealized gain.
Important Note About Equity
As long as you have open positions, your Equity will keep fluctuating with the market. Think of it as your account’s "temporary" value at that moment in time.
Once all positions are closed, your Equity becomes your actual Balance.
Balance vs. Equity — What’s the Difference?
| Balance | Equity |
|---|---|
| Reflects closed trades only | Includes both closed AND open trades |
| Doesn’t change with market movements | Moves in real time with price changes |
| Not the real-time value of your account | The true, up-to-date value of your account |
If your account has no trades open, Balance = Equity.
If you have open trades, Equity ≠ Balance.
You might have a large Balance but low Equity if your open trades are deeply in loss.
⚠️ Example:
- Balance = $1,000
- Floating loss = $900
- Equity = $1,000 – $900 = $100
This means even though your account shows a high Balance, you only have $100 of real-time value left.
Recap
Here’s what you’ve learned in this lesson:
- Equity = Balance + Floating Profit/Loss
- It shows the real-time value of your trading account.
- If no trades are open, Equity = Balance.
- If trades are open, Equity reflects market fluctuations.