What is the difference between Balance and Equity?

Let’s start with a simple answer.

If your account is “flat” or does NOT have any positions open, then your Balance and Equity are the SAME.

But if you do have open positions, this is when the Balance and Equity differ.

• The Balance reflects your profit/loss from closed positions.
• The Equity reflects the real-time calculation of your profit/loss. The Equity takes into account both open AND closed positions.

This means that when you’re looking at your Balance, it is NOT the actual real-time amount of your funds.Since Equity includes current profits or losses from open trades, it is Equity that shows the real-time amount of your funds.

It’s possible to have a very large Balance, but very small Equity.

This happens when your open positions have a large unrealized (floating) losses.

For example, if your Balance is $1,000, and you have an open trade that has a floating loss of $900.

Your Equity is only $100.

Recap

In this lesson, we learned about the following:

• Equity is your account balance plus the floating profit (or loss) of all your open positions.
• Equity represents the “real-time” value of your account.

In previous lessons, we learned:

• What is Margin Trading? Learn why it’s important to understand how your margin account works.
• What is Balance? Your account balance is the cash you have available in your trading account.
• What is Unrealized and Realized P/L? Know how profit or losses affect your account balance.
• What is Margin? Required Margin is the amount of money that is set aside and “locked up” when you open a position.
• What is Used Margin? Used Margin is the total amount of margin that’s currently “locked up” to maintain all open positions.

Let’s move on and learn about the concept of Free Margin.