What is your equity?
Learn what equity is and how it differs from your account's balance.
* Trading is risky. Your capital is at risk.
Two numbers sit in your trading account. They look similar. Sometimes they're identical. But confuse them and you won't really know where you stand. One is your balance. One is your equity.
In this short beginner's guide, we'll explain the difference.
Key takeaways
Success in the forex market means understanding the fundamentals, picking the right broker and platform, and building a strong trading plan.
Managing risks is key in forex trading. Using stop loss and take profit orders is vital to safeguard investments.
Key takeaways
What is your equity in forex trading?
While trading, it’s not uncommon for traders who are starting out to get confused between their balance and their equity.
While they can sometimes reflect the same amount, Balance and Equity refer to two different amounts.
Equity refers to the amount of money a trader has in their trading account (i.e. their Balance) plus or minus any profit or loss from open positions. If, however, the trader doesn’t have any open positions, his or her equity is equal to his or her balance.
Just like the balance, a trader’s equity is located in different spots on the trading platform, depending on whether the trader is using the MT4 or the MT5 platform. On the MT4 Client Terminal, the equity is displayed in the Terminal window under the Trade tab. On the MT5, the Equity can be seen in the Toolbox under the Trade tab.
Why equity matters
The gap between balance and equity is where new traders get into trouble. A trader might look at their $1,000 balance and feel comfortable, whilst their equity has quietly dropped to $600 because of open losing positions. That gap is real money at risk, right now.
Your broker doesn't calculate margin calls against your balance. They calculate them against your equity. So if your equity falls far enough, your trades can be closed automatically - even if your balance looks fine.