Account equity is your account’s real-time net value: your settled balance plus or minus all unrealized (floating) profit and loss from currently open positions. It fluctuates tick-by-tick whenever you hold open trades, making it the only accurate measure of where your account actually stands at any given moment.
Key Takeaways
- Balance is a static number that only changes when a trade closes or you deposit/withdraw; equity is live and moves with every pip.
- Margin calls and stop-outs are calculated from equity — not balance — so a large floating loss can trigger a forced close even while your balance looks untouched.
- Prop firm drawdown limits (e.g., FTMO’s 10% max) apply to equity in real time, meaning an open trade gone wrong can void a challenge before a single position is closed.
How Account Equity Works
The relationship between balance and equity is straightforward:
Equity = Balance + Floating P&L (all open positions combined)
When you have no open trades, equity equals balance. The moment you enter a position, equity begins to drift. A $10,000 account with three open trades generating a combined +$400 floating profit shows $10,400 in equity — but still $10,000 in balance. Close one trade for +$200 and the balance rises to $10,200; equity re-adjusts based on the remaining positions.
MT4 and MT5 display both figures side-by-side in the Terminal window along with Used Margin, Free Margin, and Margin Level. Watching just the balance column is a common mistake — it tells you nothing about your current exposure.
Free Margin is derived directly from equity:
Free Margin = Equity − Used Margin
Free margin determines whether you can open additional positions. Confusing balance for equity leads traders to believe they have more room than they do, which causes overleverage.
Margin Level % is the clearest early-warning metric:
Margin Level % = (Equity / Used Margin) × 100%
Industry-standard thresholds: margin call at 100%, automatic stop-out at 50%. Keeping Margin Level above 200% is a reasonable minimum safety buffer.
Practical Example
A trader has a $10,000 balance. They open 2 standard lots of EURUSD — at 1:100 leverage this requires approximately $2,000 in used margin.
The trade moves 250 pips against them, generating a floating loss of $5,000:
- Balance: $10,000 (unchanged — no trade closed)
- Equity: $10,000 − $5,000 = $5,000
- Free Margin: $5,000 − $2,000 = $3,000
- Margin Level: ($5,000 / $2,000) × 100% = 250% — still safe
The trade continues to move against them, reaching a total loss of $8,000:
- Equity: $10,000 − $8,000 = $2,000
- Margin Level: ($2,000 / $2,000) × 100% = 100% → margin call issued
At $9,000 in floating losses, equity hits $1,000 and Margin Level reaches 50% — the broker auto-closes the position. The realized balance becomes $1,000. Throughout this entire sequence, the balance column displayed $10,000 right up until the forced close.
Account equity is your real-time account value including all open trade profits and losses. Unlike balance, which only changes when trades close, equity moves with every pip. Margin calls are triggered by equity falling below your broker’s threshold, not by your balance.
Common Mistakes
- Monitoring balance instead of equity. Traders assume their account is healthy because balance hasn’t changed, while equity silently erodes with a large losing position.
- Ignoring equity-based prop firm rules. FTMO’s maximum overall drawdown of 10% is measured from the higher of starting balance or peak equity — a floating loss can breach that limit without a single closed trade. Many challenge failures happen this way.
- Using free margin calculated from balance. Calculating available room from balance instead of equity makes a trader think they can add to a losing position when margin is already stretched thin.
- Missing the Margin Level signal. Watching P&L in dollar terms while ignoring Margin Level % means you see the loss but miss the proximity to a forced liquidation. A 200% Margin Level is the practical floor for maintaining position flexibility.
How PipJournal Tracks Account Equity
PipJournal logs your account equity curve alongside your balance curve, so you can see exactly how floating exposure affected your true account health on any given day. The drawdown analytics distinguish between equity drawdown (peak-to-trough including open trades) and balance drawdown (closed trades only), giving prop firm traders a clear view of how close they came to their limits during active sessions.
