Equity

Equity is the total value of a trading account, calculated as the account balance plus or minus any unrealised profit or loss from open positions. It reflects the real‑time worth of the account if all trades were closed at current market prices. Equity fluctuates with price movements, while the balance only changes when positions are closed or funds are deposited/withdrawn.

How It Works

The trading platform continuously updates the unrealised P/L for each open position based on the difference between the entry price and the current market price. This figure is added to the balance when the position shows a profit, or subtracted when it shows a loss. The sum is displayed as equity. In platforms such as MetaTrader 5, equity appears in the terminal window alongside balance, margin, and free margin.

Margin requirements are calculated using equity, not balance. When equity falls below the required margin level, a margin call may be triggered, prompting the trader to add funds or close positions to avoid automatic liquidation.

Key points in the calculation:

• Equity = Balance + Unrealised P/L
• Unrealised P/L = (Current price – Entry price) × Position size (for longs) or (Entry price – Current price) × Position size (for shorts)
• Free margin = Equity – Used margin

Why It Matters for Traders

Equity determines the actual capital available for opening new trades and withstanding adverse price moves. A trader who looks only at balance may overestimate risk capacity, especially when open positions are losing money. Monitoring equity helps prevent unexpected margin calls and informs decisions about position sizing, stop‑loss placement, and leverage use.

Because equity includes unrealised results, it provides a more accurate picture of performance during a trading session. It also influences the calculation of return on equity, a metric used to evaluate the efficiency of a trading strategy over time.

Example

A trader opens an account with a balance of $10,000. They buy 1 lot of EUR/USD at 1.1000 (position size = 100,000 EUR). The current market price rises to 1.1050.

Unrealised P/L = (1.1050 – 1.1000) × 100,000 = $500 profit.

Equity = Balance $10,000 + Unrealised P/L $500 = $10,500.

If the price instead falls to 1.0950, the unrealised P/L becomes –$500, and equity drops to $9,500. Should the trader have used $2,000 of margin for this trade, free margin would be equity minus used margin ($9,500 – $2,000 = $7,500) in the losing scenario.

Key Takeaways

• Equity combines balance and unrealised profit or loss, showing the account’s real‑time value.
• It drives margin calculations and free‑margin availability, affecting the ability to open new trades.
• Watching equity helps traders avoid margin calls and manage risk more effectively than relying on balance alone.
• Platforms such as MetaTrader 5 display equity prominently, making it easy to monitor during live trading.