Equity

Equity is one of the essential metrics displayed on trading platforms, representing the true real-time value of an account if all open positions were closed immediately. Equity differs from the balance in that it fluctuates continuously with price movements as long as positions remain open, whereas the balance remains static until trades are officially closed.

Equity is calculated using the following formula: Equity = Balance + Floating Profits - Floating Losses

Equity plays a vital role in risk management because platforms rely on it to determine safety margins and free margin levels. A significant drop in equity can trigger a margin call or the forced liquidation of positions (stop out). Consequently, traders must continuously monitor their equity rather than relying solely on the balance, especially when trading large lot sizes or using high leverage.

A common mistake among traders is focusing exclusively on the stated balance while ignoring actual equity. This can create a false sense of security when open positions are incurring substantial losses that put the account at risk.