Equity is one of the simplest but most important numbers shown in a trading account. In plain terms, equity is the real‑time value of your forex account: the amount of money you would have if you closed every open trade right now. That number moves every second while positions are open because it includes unrealised (floating) profits and losses. Understanding equity helps you judge how healthy your account is, how much risk you are carrying, and how close you might be to a margin call or forced liquidation.
How equity is calculated
Equity is calculated by starting with your account balance (deposits plus any realised profits or losses) and then adding or subtracting the combined floating profit and loss from all open positions. Put simply:
Equity = Account balance + Floating profit (or − Floating loss)
For example, imagine you deposit $2,000 into an account and then open two positions. One position is currently showing an unrealised profit of $150 and the other is showing an unrealised loss of $60. Your balance remains $2,000 while the trades are open, but your equity is $2,000 + 150 − 60 = $2,090. If you closed both trades, your balance would update to that same $2,090.
That floating nature is what traders mean when they talk about equity as a “live” or “floating” measure of account value.
Equity, balance, margin and free margin — how they relate
Equity sits at the centre of several other account figures that affect what you can do in the market. Balance is the static number that only changes when trades are closed, when you deposit, withdraw, or receive fees or credits. Margin is the amount the broker requires to keep your leveraged positions open; that amount is “locked” and not available to open new trades. Free margin is the portion of equity that is not being used as margin and can therefore be used to open new positions.
In other words, equity is split conceptually into used margin and free margin. A useful way to think about it:
Equity = Free margin + Used margin
And brokers often express the relationship with a margin level percentage, calculated as equity divided by used margin, then multiplied by 100. That percentage helps determine whether a broker will issue warnings (margin calls) or start closing positions (stop‑out).
Concrete examples you can visualise
A few short examples help show why equity matters in practice.
Example 1 — small winners and losers: You start with $5,000 and open several small trades. One trade is up $120, another is down $80. Your balance remains $5,000 while those trades are open, but equity is $5,000 + 120 − 80 = $5,040. That $40 difference tells you your current, actionable account value.
Example 2 — margin effects: With $5,000 equity you open a leveraged position that requires $1,000 margin. Your used margin is $1,000 and your free margin is $4,000. If your open position goes into a $3,500 unrealised loss, your equity falls to $1,500 and your free margin is only $500. A further adverse move could trigger a margin call or stop‑out depending on broker rules.
Example 3 — the danger of high leverage: With high leverage, small price moves can produce large swings in floating P/L and therefore equity. If leverage amplifies position size so that a 1% price move equals a large unrealised loss, equity can fall quickly even while balance still looks healthy.
Why equity matters to traders
Equity is more than a number to glance at; it drives practical decisions. Brokers use equity to calculate margin level and to determine when to warn or intervene. Traders use equity to size positions, set stop losses, and decide whether they can afford to hold or add positions. An equity curve—your equity over time—gives a quick visual of how a strategy performs: steady upward movement suggests consistent gains, while large drops indicate periods of harmful drawdown.
Because equity reflects unrealised results, it also acts as a discipline tool. Seeing falls in equity before the account balance is affected can prompt earlier risk management actions such as tightening stops or reducing position size.
How to keep equity healthy: practical controls
Protecting equity is essentially risk management. Start with position sizing: risk a fixed, small percentage of equity per trade rather than a fixed dollar amount. That makes your risk scale with your account and prevents a single loss from draining a large portion of capital.
Use stop‑loss orders to limit downside on each trade and place them at levels that make sense for your strategy and the current market environment. Avoid over‑leveraging; leverage magnifies both gains and losses, and when equity moves against you, high leverage speeds you toward margin calls.
Diversify exposure where appropriate: trading multiple uncorrelated pairs or spreading risk across different timeframes reduces the chance that a single market event will wipe out equity. Finally, practice strategies first on a demo account and keep a trading log so you can review equity drawdowns and recovery patterns objectively.
Where you typically see equity in your platform
Most trading platforms display equity alongside balance, margin and free margin in the account or trade panel. In common retail terminals it typically appears in the trade/tab or account summary area. If you ever think the platform is showing the wrong equity, contact your broker support—errors are rare but worth checking.
Risks and caveats
Trading carries risk, including the risk of losing more than your initial investment when leverage is used; this article does not offer personalised financial advice. Equity is a live measure and can move quickly in volatile markets; overnight gaps, news events, and low‑liquidity periods can produce larger-than-expected swings in equity and may generate slippage between the stop level you placed and the executed price. Broker rules vary: margin call and stop‑out levels, plus whether negative balance protection exists, differ between providers—know your broker’s terms. Emotional reactions to falling equity can cause poor decisions such as moving stop losses or increasing position size to “win back” losses; discipline and preplanned risk rules are essential to avoid that trap.
Key Takeaways
- Equity = account balance + unrealised profit/loss; it shows your account’s real‑time value while trades are open.
- Equity affects free margin and margin level; falling equity can trigger margin calls and stop‑outs.
- Protect equity with sensible position sizing, stop‑losses, controlled leverage, and strategy testing.
- Trading involves risk; this is educational information only and not personalised advice.
References
- https://www.investing.com/brokers/guides/forex/equity-in-forex-unraveling-its-importance-in-currency-trading/
- https://www.litefinance.org/blog/for-beginners/what-is-forex/what-is-equity-in-forex-trading/
- https://www.axiory.com/en/trading-resources/trading-terms/what-is-equity
- https://www.forextime.com/education/videos/what-is-equity
- https://www.babypips.com/learn/forex/what-is-equity
- https://pippenguin.net/forex/learn-forex/equity-forex/
- https://admiralmarkets.com/education/articles/forex-basics/what-is-equity-in-forex-trading
- https://tradingfinder.com/education/forex/what-is-equity/