Most platforms show your balance and your equity side by side, and beginners often assume they're the same number. They're not — and the gap between them is where a lot of account-blowing surprises live. Understanding equity is essential for reading your real position and for surviving the rules of a funded account.
The short answer
Account equity is your account balance plus or minus the floating profit or loss of any open trades. If your balance is $10,000 and you have a trade currently up $200, your equity is $10,200. If that trade is down $300, your equity is $9,700 — even though your balance still reads $10,000 until the trade closes.
Equity = balance + unrealised profit/loss of open positions
Equity vs balance
The distinction is simple but important:
- Balance only updates when a trade is closed — it's your settled cash.
- Equity updates continuously with the market while trades are open.
When you have no open positions, the two are identical. The moment you open a trade, equity starts moving with price while balance sits still until you close.
A practical example
Say your balance is $10,000 and you open a position. As price moves in your favour, your equity might rise to $10,400 while your balance still shows $10,000 — that $400 is unrealised. If you close there, the $400 becomes realised and your balance updates to $10,400. But if price reverses and the trade ends up down $250, you'd close at a $9,750 balance instead. Equity was simply showing you the live value the whole time.
Why it matters
Equity, not balance, is what actually governs your account:
- Margin and free margin are calculated from equity. As equity falls, your free margin shrinks, and if it runs out you face a margin call or stop-out.
- Drawdown is often measured on equity, so an open losing position can put you in drawdown before you've closed anything.
- Prop firm limits frequently track equity, meaning a floating loss can breach a daily or maximum-loss rule in real time.
Reading equity rather than balance is how you see your true exposure at any moment.
Common mistakes
- Watching balance instead of equity during open trades, and missing how close you are to a margin issue.
- Assuming a prop firm measures limits on balance when many use equity — a floating loss can breach a rule before you close.
- Opening new positions based on balance when free margin (from equity) is already thin.
Connection to risk management
Because equity reflects live exposure, it's the number that matters for staying inside your limits. Sizing positions sensibly with the Position Size Calculator keeps floating losses — and therefore equity swings — within a range you can absorb. If you trade a funded account, knowing whether limits track equity or balance is part of building a sound prop challenge risk plan.
Related tools
- Position Size Calculator — size trades so equity swings stay controlled.
- Margin Calculator — see how much equity a position ties up.
- Drawdown Recovery Calculator — understand the cost of an equity drawdown.
Related guides
A note on risk: This is educational content, not financial advice. Trading involves significant risk of loss, and you are responsible for your own decisions.
Frequently asked questions
What is the difference between balance and equity?
Balance is the cash in your account from closed trades. Equity is your balance plus the floating profit or loss of any open positions. When you have no trades open, balance and equity are the same; once a position is open, equity moves with the market in real time.
Why does my equity change when balance stays the same?
Because equity includes the unrealised profit or loss on open trades. The balance only updates when a trade is closed, but equity reflects the current market value of everything open right now.
What is free margin?
Free margin is the equity not currently tied up as margin for open positions — the buffer available to absorb adverse moves or open new trades. As equity falls, free margin shrinks, which is what eventually triggers a margin call.
Why do prop firms measure drawdown on equity?
Many prop firms track drawdown on equity rather than balance, so an open position moving against you can breach a limit even before you close it. Always check whether a firm measures limits on balance or equity.