Equity vs Balance: What's the Difference in Your Trading Account?
TL;DR: Your balance is a fixed number that only changes when you close a trade, make a deposit, or withdraw. Your equity moves in real time because it includes your open trades' floating profit or loss. Most risk rules in MetaTrader use equity, not balance, so understanding the difference directly affects how long your account survives a losing streak.**
The Two Numbers Every Trader Sees (But Not Everyone Understands)
Open MetaTrader and look at the bottom of the terminal window. You will see a row of figures: Balance, Equity, Margin, Free Margin, Margin Level. New traders tend to watch the balance and ignore the rest. That habit causes real problems once positions are open.
The two most important figures to understand first are balance and equity. They can look identical when you have no open trades. The moment you enter a position, they start to diverge, and the gap between them tells you exactly how your open trades are performing right now.
What Is Your Account Balance?
Your balance is the confirmed, settled value of your account. It changes only when one of three things happens:
- You close a trade (profit or loss is added or subtracted)
- You deposit funds
- You withdraw funds
While a trade is open, your balance does not move. It is a historical record of completed activity, not a live reflection of your current situation.
If you started the week with $5,000 and closed two winning trades totaling $300 in profit, your balance is now $5,300. It will stay at $5,300 until you close another trade or move money.
What Is Your Account Equity?
Equity is your balance adjusted for whatever is happening inside your open trades right now.
The formula is straightforward:
Equity = Balance + Floating PnL
Floating PnL (profit and loss) is the unrealized gain or loss across every position you currently have open. It is "floating" because it has not been locked in yet. The moment you close the trade, the floating amount disappears and the settled profit or loss moves into your balance instead.
So if your balance is $5,300 and you have an open trade that is currently down $200, your equity is $5,100. If that same trade reverses and moves into $150 profit, your equity becomes $5,450, while your balance remains $5,300 the entire time.
Why Does MetaTrader Use Equity Instead of Balance for Margin Calculations?
This is the question that trips up most beginners, and it is worth spending time on.
When MetaTrader calculates your Free Margin and Margin Level, it uses equity, not balance. The broker needs to know how much real money you actually have available right now, not how much you had available before the market moved against you.
Here is the chain of relationships:
- Used Margin is the collateral held by your broker against your open positions.
- Free Margin = Equity minus Used Margin. This is what you can use to open new trades or absorb further losses.
- Margin Level = (Equity / Used Margin) x 100. This percentage tells your broker how healthy your account looks relative to its obligations.
If equity drops because your floating PnL turns deeply negative, your margin level falls with it. When it hits your broker's margin call threshold (commonly around 100%) you receive a margin call. If it falls further to the stop-out level (often 50%), MetaTrader starts closing your positions automatically, beginning with the largest losing one.
Notice that none of this mechanism depends on your balance. Your balance could still look healthy. It is your equity that triggers the alarm.
what is a margin call and how to avoid it
A Simple Example That Shows the Difference Clearly
Start with a clean account:
- Deposit: $2,000
- No open trades
- Balance: $2,000 | Equity: $2,000
You open one lot of EUR/USD. Your broker requires $500 margin for that position.
- Balance: $2,000 (unchanged)
- Used Margin: $500
- Free Margin: $1,500
- Equity: $2,000 (trade is flat at the moment of entry)
The trade moves against you by 80 pips, and each pip is worth roughly $10, so you are sitting on a $800 floating loss.
- Balance: $2,000 (still unchanged)
- Floating PnL: -$800
- Equity: $1,200
- Free Margin: $700
- Margin Level: ($1,200 / $500) x 100 = 240%
Your balance still reads $2,000. Someone glancing at that number might think everything is fine. Your equity tells the real story: you have lost 40% of your account value on paper, and your margin level has dropped significantly.
If the trade recovers and you close it for a $100 profit:
- Balance: $2,100
- Equity: $2,100 (they snap back together because no trades are open)
The floating PnL disappears. The result settles into balance.
What Changes When You Close a Trade?
Closing a trade is the event that synchronizes balance and equity. Before the close, they can be far apart. At the moment of close:
- The floating PnL stops floating and becomes realized.
- That realized amount is added to or subtracted from your balance.
- The used margin for that position is released back into free margin.
- If you have no other open trades, balance and equity are now identical again.
This is why some traders feel a sense of relief when they close out everything at end of week. The equity and balance figures settle to the same number, giving them a clear, honest picture of where they stand.
realized vs unrealized profit in forex
Common Mistakes New Traders Make Because of This Confusion
Watching Balance Instead of Equity
A trader sees their balance at $3,000 and thinks they have $3,000 to work with. They open another position. In reality, their equity is $2,200 because of a losing open trade. Their free margin is much tighter than the balance implied. They are surprised when they receive a margin call.
Thinking a High Balance Means a Safe Account
Balance only tells you about closed trades. If you have a heavy unrealized loss sitting in an open position, your account is far more vulnerable than the balance figure suggests. Equity reflects that vulnerability; balance hides it.
Not Accounting for Swap and Commission in Floating PnL
On positions held overnight, your broker charges or pays swap (rollover interest). These amounts affect your floating PnL and therefore your equity, even if the price of the instrument has not moved. Small accounts holding large positions overnight can see their equity chipped away by swap costs before the market even opens.
How Should You Use These Numbers in Practice?
A few practical habits that follow from understanding the difference:
Check equity, not balance, before opening a new trade. Your free margin is calculated from equity. If equity is well below balance, you have less room than the balance figure implies.
Set your risk rules based on equity. If you risk 1% per trade, that 1% should be calculated from your current equity, not your balance. This keeps your position sizing honest when you are already holding losing trades.
Use equity as your drawdown benchmark. If your equity drops more than a set percentage below your balance (say, 10%), that can act as a soft signal to stop adding new positions until you sort out the open ones.
position sizing and risk management for forex beginners
FAQ
Q: Can equity ever be higher than balance? Yes. If your open trades are collectively in profit, your floating PnL is positive, which pushes equity above balance. This is a good position to be in, but remember it is unrealized until you close.
Q: Does depositing money change my equity immediately? Yes. A deposit goes straight into your balance, and since equity is calculated from balance plus floating PnL, equity rises by the same amount immediately.
Q: What happens to my equity when I withdraw funds? A withdrawal reduces your balance. If you have no open trades, equity drops by the same amount. If you have open trades, equity reflects both the lower balance and the current floating PnL.
Q: Why do my balance and equity show the same number sometimes? When you have no open trades, there is no floating PnL to add or subtract. Balance and equity are equal. They diverge only while positions are live.
Q: Does equity affect the leverage I can use? Not directly in terms of the leverage ratio set by your broker, but it affects how much free margin you have available, which in turn limits the total notional value of positions you can open at any given moment.
The Bottom Line
Balance tells you what you have confirmed and locked in. Equity tells you what you actually have right now, including everything your open trades are doing to your account in real time. MetaTrader bases margin calls, stop-outs, and free margin calculations on equity because equity is the honest, current picture. Get in the habit of reading equity first whenever you are assessing your account health or deciding whether to open a new trade. The balance figure matters, but it is always looking at the past.