Web Trader MT5
You’ve probably experienced a situation where your balance and equity don’t match in your trading account; you’re not the only one! It can get confusing, particularly because both numbers may appear to be your account value. The distinction is in a single word: your balance reflects your settled funds, your equity reflects your current account value, including any unrealised gains or losses.
It’s important to understand this difference because it affects your margin and helps you understand your account’s current position and risk exposure. In this guide, you’ll understand the meaning of each term, how they are computed, why they vary, and how they can help you understand your trading account.
What Is Account Equity in Trading?
Account equity is the current value of your trading account in real-time – your balance plus or minus any unrealised profit or loss on open positions.
The formula is easy:
Equity = Balance + Unrealised P&L
Floating P&L means the total of all unrealised profit or loss on all open positions. If your open trades are in profit, your equity is more than your balance. If they are losing, your equity is less.
If you have no open positions and there are no other account adjustments, floating P&L is 0 and equity is the same as balance. When you open a trade, equity generally moves with the market, but your balance remains unchanged by the trade until it is closed.
Account Equity vs Balance — What Is the Difference?
Balance and equity are two separate things; balance is a record of settled funds and realised transactions, while equity is a live measure of the account value.
Your balance generally changes only when a trade is closed, although other account transactions or adjustments may also affect it. When a trade is closed, its realised profit or loss is reflected in the balance figure. Balance generally remains unchanged between transactions that affect it. However, equity refreshes in real-time and constantly tracks the current market value of all open positions.
| Balance | Equity | |
|---|---|---|
| What it shows | Settled funds after closed trades | Real-time value including open positions |
| When it updates | Only when a trade closes | Continuously, with every price movement |
| Changes with open positions | No | Yes |
Worked example:
- Balance: $1,000
- Open EUR/USD trade showing a floating loss of $50
- Equity = $1,000 + (-$50) = $950
If the trade recovers and the floating loss becomes a $30 gain:
- Equity = $1,000 + $30 = $1,030
- Balance remains $1,000 in this example until the trade is closed or another transaction affects the balance.
Why Does Account Equity Matter?
Equity is an important figure when you have open trades; it is used in calculating free margin, which can affect whether you can open new positions.
Free margin is the amount of your equity that is not currently being used as collateral on open trades:
Free Margin = Equity – Margin Used
If you have $950 equity and $500 used margin, then your free margin is $450. That represents the amount of equity not currently committed as used margin, which may be available to absorb adverse price movements or support additional positions, subject to the applicable margin requirements.
This is why one of the first practical habits to learn is to watch equity, not simply balance. Balance may not reflect unrealised gains or losses, while equity provides a current view that includes open positions.
Here, it’s important to understand what pip value is, how price movements can affect profit and loss, and how these movements can affect your free margin and margin level. Equity is one of the key figures to understand when you’re getting started in trading.
What Is Margin Level and How Is It Related to Equity?
Margin level is shown as a percentage and tells you what percentage of your equity you are using on your margin — and it’s the measure brokers use to decide when to make a margin call or trigger a stop-out.
The formula goes:
Margin Level % = (Equity / Margin Used) x 100
For example, if you have $950 equity and $500 used margin, your margin level will be 190%. As open positions move against you, the margin level drops and equity may decrease, where applicable.
The majority of brokers have two levels:
- Margin call level – for example, 100%. Depending on the broker’s terms, you may be notified and may need to consider adding funds, reducing positions, or closing trades.
- Stop-out level – for example, 50%. Depending on the broker’s terms, one or more positions may be closed automatically when the applicable threshold is reached. The order and execution price may be determined by the broker and prevailing market conditions.
In leveraged trading, margin level can change extremely quickly. A quickly moving market surrounding a major news release can cause prices to move sharply in minutes, potentially reducing margin level. A substantial cushion, not overleveraging and sizing positions cautiously, is a practical priority, not just a theoretical one.
The key context for anyone trading leveraged securities is an understanding of CFD leverage and how it can magnify the gains and losses that feed into equity.
Frequently Asked Questions
Account equity is the current worth of your trading account and is calculated as the balance plus any unrealised profit or loss on active positions.
Equity represents the current value of your account, including unrealised gains and losses on open trades. It is different from balance since it comprises unrealised gains and losses in open positions that haven’t been locked in by closing the trade.
Equity = Balance + Floating P&L. If open positions are profitable, equity exceeds balance. If they’re losing, equity is below balance. Equity generally returns to the balance figure when positions are closed, subject to any applicable fees, charges or other account adjustments.
Balance generally remains unchanged until the trade closes or another transaction affects the account. Real-time equity updates with every price shift. In active trading, the two figures may be different when there are open positions with unrealised profit or loss.
Where negative balance protection applies, losses on the relevant retail account are generally limited to the funds available in the account. But such protection depends on the broker and the jurisdiction. Always check if your account has negative balance protection before trading with leverage.
Free margin is the portion of equity not currently used as margin on open positions: Free Margin = Equity – Used Margin. It indicates the amount of equity not currently committed as used margin and can help you understand your available buffer against adverse price movements and applicable margin thresholds.
Conclusion
Account equity is an important metric on a trading platform, particularly when you have trades open, and is directly tied to margin calculations. Monitoring equity can help you understand your available margin and how close your account may be to applicable margin-call or stop-out thresholds.
Monitoring your equity in real time, understanding how open positions affect it, and keeping track of your free margin can help you understand your account position at any given moment.
Note: CFDs are complex financial instruments and carry a high risk of losing money rapidly due to leverage. It is important to be aware of all the risks involved when trading, and it is advisable to get independent financial advice if you are unsure.
The information provided on this site is for educational and informational purposes only. It does not constitute investment or financial advice or a suggestion to trade any financial instrument.
Tags
Open Live Account
Email Address
Phone Number
Important Notice
STARTRADER does not accept any applications from Australian residents.
To comply with regulatory requirements, clicking the button will redirect you to the STARTRADER website operated by STARTRADER PRIME GLOBAL PTY LTD (ABN 65 156 005 668), an authorized Australian Financial Services Licence holder (AFSL no. 421210) regulated by the Australian Securities and Investments Commission.
Important Notice for Residents of the United Arab Emirates
In alignment with local regulatory requirements, individuals residing in the United Arab Emirates are requested to proceed via our dedicated regional platform at startrader.ae, which is operated by STARTRADER Global Financial Consultation & Financial Analysis L.L.C.. This entity is licensed by the UAE Capital Market Authority (CMA) under License No. 20200000241, and is authorised to introduce financial services and promote financial products in the UAE.
Please click the "Continue" button below to be redirected.
