Traders usually understand the term “balance” in the account. But let us see what accounts equity is.
What Does Equity Mean in Forex?
Account equity in forex trading means the total current value of a forex trader’s account, equal to the account balance plus or minus any profit or loss from open positions. When there are no open trades in the trading account, equity is as same as the trading balance. When the trading account is in profit, equity equals the sum of balance and floating profits. When the trading account is in loss, equity equals the sum of balance and floating losses.
In simple words, equity refers to traders’ money in their trading accounts plus or minus any profit or loss from open positions.
Below you can see a video about equity in forex:
The equity formula is:
Equity = Account Balance + Floating Profits (or Losses)
Forex equity examples:
Example 1: Forex account equity without trades
Let us assume that the trader has a $1000 account.
The trader doesn’t have any open trades.
In this case: Equity = Account Balance = $1000
Example 2: Forex account equity in the profitable account:
Let us assume that the trader has a $1000 account. And trader has 1 mini lot open position 10 pips in profit:
In this case: Equity = Account Balance + Floating Profit = $1000 + $10 = $1010.
Example 3: Forex account equity in the loss account:
Let us assume that the trader has a $1000 account. And trader has 1 mini lot open position 10 pips in loss:
In this case: Equity = Account Balance + Floating Loss = $1000 – $10 = $990.
What is the difference between balance and equity in forex?
The difference between balance and equity in forex is that equity equals the account balance plus or minus any profit or loss from open positions. Balance and equity value are the same when there are no open positions in a forex trading account. The equity value is higher than the balance when the forex trading account is in profit. Conversely, the equity value is lower than the balance when the forex trading account is in loss.
Equity in business is something different.
What does equity mean in business?
Company Equity represents residual value to shareholders. Equity for shareholders is a company’s value returned to a company’s shareholders if all assets were liquidated. In addition, all of the company’s debts were paid off.
