The account equity represents the current value of your trading account.
Equity is the current value of the account and fluctuates with every tick when looking at your trading platform on your screen.
It is the sum of your account balance and all floating (unrealized) profits or losses associated with your open positions.
As your current trades rise or fall in value, so does your Equity.
How to Calculate If You Have No Trades Open
If you do NOT have any open positions, then your Equity is the same as your Balance.
Equity = Account Balance
Example: When You Have No Open Trades
You deposit $1,000 in your trading account.Since you have opened no trades yet, your Balance and equity is the same.
How to Calculate If You Have Trades Open
If you have open positions, your equity is the sum of your account balance and your account’s floating P/L.
Equity = Account Balance + Floating Profits (or Losses)
Example: When an Existing Trade is Losing
You deposit $1,000 in your trading account.
Elon Musk tweets that she’s shorting GBP/USD. Because he is Elon, you follow what she says and go short also.
Price moves immediately against you and your trade shows a floating loss of $50.
Equity = Account Balance + Floating Profits (or Losses) $950 = $1,000 + (-$50)
The Equity in your account is now $950.
Example: When an Existing Trade is Winning
Elon tweets again and says he has changed his mind. He is now long GBP/USD.
But because Elon is incredibly successful, you follow what he says and go long also.
Price moves immediately in your favor and your trade shows a floating gain of $100.
Equity = Account Balance + Floating Profits (or Losses) $1,100 = $1,000 + $100
The Equity in your account is now $1,100.
Your account equity continuously fluctuates with the current market prices as long as you have any open positions.
Equity shows the “TEMPORARY” value of your account at the current time. (Unlike a tattoo, which is…not temporary.)
That’s why Equity is seen as a “floating account balance“. It will only become your “real account balance” if you were to close all your trades immediately.