What is Equity in trading?

Every automatic decision in your account is built on equity rather than balance: free margin is subtracted from it, margin level divides by it, and both the margin call and the stop-out fire from it. Balance enters none of these equations.

So the only practical question during a losing trade is how much equity remains. The answer changes with every tick, while balance sits still and tells you nothing.

The chain has a fixed order, and each term is derived from the one before it:

Balance → (add the profit or loss of open positions) → equity → (subtract the margin held) → free margin. The ratio of equity to held margin is the margin level, the single number a broker watches to decide a margin call and then a stop-out.

Learn the definitions separately and you know what each word means without knowing the price at which your account closes. Every page in this family runs the same account through the same numbers to reach exactly that price.

Equity = balance + net floating profit/loss of open positions

The reference account used across this family: a $1,000 balance, 1:500 leverage, and a 0.10 lot buy on gold at 2,400.00 — 10 ounces, $24,000 notional.

Margin held = 24,000 ÷ 500 = $48. Every $1 of gold price is $10 of profit or loss on 10 ounces.

At 2,400 equity is $1,000, since the position is neither up nor down. If gold falls to 2,350 the floating loss is 50 × 10 = $500, so equity becomes $500 while balance still reads $1,000. The broker sees 500, not 1,000.

Where the same account ends up: margin call at 2,304.80, stop-out at 2,302.40. The position survives a $97.60 fall — about 4% — before the broker intervenes. Run your own numbers in the margin calculator.

• Watching balance during a trade and taking comfort in it, while every decision hangs on equity.
• Believing equity only drops when a loss is realised; it falls tick by tick with the floating loss.
• Forgetting that swap charges also come out of equity, moving you toward stop-out without any adverse price move.