Definition
EquityEquity is the real-time value of a trading account: the balance plus or minus the unrealized profit or loss on all open positions.
Example
With a $5,000 balance and an open trade showing a $300 loss, account equity is $4,700. If that trade were closed, the balance would become $4,700.
In detail
Trading platforms show several account figures that are easy to mix up. Equity is the one that reflects what your account would be worth if you closed everything at current prices.
Equity = balance + floating profit − floating loss
The balance only changes when a trade is closed (or when deposits, withdrawals, swaps and commissions are applied). Equity moves tick by tick with the market.
How equity connects to margin
Equity is the figure brokers watch to decide whether you can keep positions open. Two related values are calculated from it:
- Free margin = equity − used margin. This is what is available to open new trades or absorb further losses.
- Margin level = equity ÷ used margin × 100%. When this falls to the broker's threshold, you receive a margin call or positions are closed automatically (a "stop out").
Example
Assume (illustratively) an account has a $10,000 balance. The trader opens 1 standard lot of EUR/USD at 1.0850 with 1:30 leverage.
- Notional value: 100,000 × 1.0850 = $108,500
- Used margin: 108,500 ÷ 30 = about $3,617
If EUR/USD then falls 50 pips, the floating loss is 50 × $10 = $500.
- Equity: 10,000 − 500 = $9,500
- Free margin: 9,500 − 3,617 = $5,883
- Margin level: 9,500 ÷ 3,617 × 100 = about 263%
The balance still reads $10,000 until the trade is closed.
Why it matters
Equity tells you the truth about your account. A healthy-looking balance can hide large open losses. Watching equity, rather than balance, helps you spot growing drawdown early and avoid being surprised by a margin call. Many traders also base their position sizing on equity rather than balance, so that open losses automatically reduce the size of new trades.
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Related terms
- MarginMargin is the portion of your account a broker sets aside as a good-faith deposit to open and hold a leveraged position. It is not a fee.
- Margin CallA margin call is a broker warning that your account equity has fallen too low relative to the margin your open positions require.
- DrawdownDrawdown is the decline in an account or strategy from a peak value to a subsequent low, usually expressed as a percentage of that peak.
- LeverageLeverage lets you control a position larger than your own deposit by using borrowed exposure from your broker. It magnifies both profits and losses.