Equity

What is equity in a trading account?

Equity is the true, live value of a trading account at any given moment. It is calculated as:

Equity = Account Balance + Floating (Unrealized) Profit/Loss

Unlike account balance, which only reflects money from closed trades, equity constantly moves as the market moves, because it factors in the running gain or loss of every currently open position. When you have no open trades, equity and balance are the same number.

A worked example

Say your account balance is $5,000 and you have one open position currently showing a floating profit of $300. Your equity right now is $5,300 — even though that $300 hasn’t been locked in yet and could shrink or grow before you close the trade. If the same position instead showed a floating loss of $300, your equity would be $4,700.

Equity vs. free margin vs. balance

Equity feeds directly into other key account metrics. Free margin — the funds available to open new trades or absorb further losses — is calculated as equity minus used margin. A trader’s margin level, the ratio brokers watch to decide whether to issue a margin call or stop-out, is also based on equity, not balance. This is why equity, not balance, is the number that really determines how much breathing room an account has at any moment.

Why equity matters

Equity is the single most important figure for monitoring real-time account health, especially when trading with leverage. A trader can have a healthy account balance on paper but a dangerously low equity if open positions are deep in floating losses — which is exactly the scenario that precedes a margin call or automatic stop-out. Checking equity, not just balance, is a basic habit of sound risk management.

Equity can change rapidly with market movement, especially on leveraged positions. This article is educational and not financial advice.