Equity is the real-time value of your trading account, calculated as your balance plus or minus any unrealized profit or loss from open positions. It represents what your account would be worth if you closed every open trade right now. Equity is the most accurate measure of your account’s current health.
How Equity Is Calculated
Equity = Account Balance + Unrealized Profits - Unrealized Losses
Example
- Account balance: $10,000
- Open trade 1: EUR/USD, +$250 unrealized profit
- Open trade 2: GBP/JPY, -$80 unrealized loss
- Equity: $10,000 + $250 - $80 = $10,170
If you closed both trades, your balance would become $10,170 and equity would equal balance.
Equity vs. Balance
| Balance | Equity | |
|---|---|---|
| Includes open trades | No | Yes |
| Changes in real-time | Only on close/deposit/withdraw | Every tick |
| Used for margin calculations | No | Yes |
| Used for drawdown tracking | Sometimes | Usually |
Balance is what you’ve locked in. Equity is what you actually have. Focusing only on balance can give a false sense of security if you’re holding large unrealized losses.
Why Equity Matters
Margin calculations
Your broker calculates margin requirements based on equity. If your equity drops below the required margin level, you’ll receive a margin call or automatic position closure.
Drawdown measurement
Drawdown is measured from your peak equity, not peak balance. An unrealized loss counts as drawdown even before you close the losing trade.
Prop firm compliance
Most prop firms track equity-based drawdown. If your equity drops below the maximum allowed drawdown threshold — even for a moment — your account may be terminated. This makes equity monitoring critical for funded traders.
The Equity Curve
An equity curve is a chart plotting your equity over time. It’s one of the most powerful visual tools for evaluating your trading performance.
A good equity curve:
- Trends upward overall
- Has shallow, short-duration drawdowns
- Shows smooth, consistent growth
Warning signs:
- Deep drawdowns (>20% from peak)
- Long flat periods (no growth)
- Sharp spikes followed by crashes (inconsistent risk)
Tracking Equity in Your Journal
Your journal should track:
- Daily equity snapshots — Your equity at the end of each trading day
- Peak equity — The highest your equity has reached (for drawdown calculations)
- Equity curve visualization — A chart showing equity over time
- Equity vs. balance divergence — Large gaps between equity and balance indicate heavy unrealized exposure
PipJournal tracks your equity in real-time, generates your equity curve automatically, and alerts you when drawdown from peak equity reaches concerning levels.
