🧱 Basics·beginner

Equity

Balance plus or minus your current floating P&L — what you'd have if you closed every trade right now.

Equity is your account balance combined with the unrealized (open) P&L of every active trade. Unlike balance, equity moves in real time. Every pip your trades move in your favor, equity ticks up. Every pip against, it drops. Equity is the number that matters for margin calls. When equity falls below a certain threshold (usually 50% or 20% of used margin depending on the broker), the broker starts auto-closing positions. That's why traders who over-leverage can get wiped out overnight even though their balance "looked healthy." If you have zero open trades, equity = balance. The moment you open a trade, they diverge.

Real trade example

The 2015 CHF shock destroyed thousands of retail accounts — equity went from positive to negative in seconds as stops gapped through. Many brokers had to forgive the negative balances just to survive.

Related terms

Balance

beginner

The total cash in your trading account, not counting any open-trade P&L.

Margin

beginner

The amount of your own money locked up as collateral to open and hold a leveraged position.

Free Margin

beginner

The portion of your account equity that's NOT being used as margin for open trades — what's available to open new positions.

Margin Call

beginner

The broker's warning (or automatic closeout) when your account loses too much and can no longer support your open trades.

Drawdown

intermediate

The peak-to-trough drop in your account equity — a measure of how bad your worst losing streak got.

Major Pair

beginner

Any forex pair that includes the US dollar and one other top-tier global currency — the most liquid pairs in the world.

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