In trading, balance and equity are two key values that represent the financial state of your trading account.
Although they may look similar, they show different things about your account - and understanding the difference between them is essential for effective risk management.
What Is Balance?
Your balance represents the total amount of money in your trading account after all closed trades.
It includes your initial deposit, profits from completed trades, and any losses from closed positions.
In short, balance shows your account value when you have no open trades.
It remains unchanged until you close or modify a trade.
Example:
If you start with $10,000 and close a trade with a $500 profit, your new balance will be $10,500.
What Is Equity?
Your equity reflects the real-time value of your account, including both closed and open trades.
It changes constantly as the market moves because it takes into account your floating profit or loss from open positions.
Formula:
Equity = Balance + Floating Profit/Loss
Example:
If your balance is $10,000 and you currently have an open trade showing a $300 unrealized loss, your equity will be $9,700.
If that same trade moves into a $400 profit, your equity rises to $10,400 - even though your balance is still $10,000 until the trade is closed.
Why the Difference Matters
The distinction between balance and equity is extremely important, especially for drawdown calculations.
At Upcomers, many rules - such as the Daily Drawdown or Trailing Drawdown - are based on your equity, not just your balance.
This means your open trades can affect these limits even before they are closed.
By keeping an eye on your equity, you can better control your risk and avoid breaching drawdown limits unintentionally.