Equity in gold trading

Equity is what an account would be worth if every open position were closed at the current price. It equals the balance (the result of closed trades and deposits) plus any unrealized profit and minus any unrealized loss. Equity changes with every tick while positions are open; balance changes only when a trade is closed.

How it applies to gold trading

Equity is the figure that margin level, free margin and drawdown are all calculated from. An account with a $10,000 balance and a 0.20-lot long position that is $15 underwater has equity of $10,000 − ($15 × 100 × 0.20) = $9,700. The balance still says $10,000, which is why balance is a poor guide to how an account is really doing.

Prop firms and funded-account providers usually measure daily loss limits and maximum drawdown on equity, not balance, so an open losing position counts against the limit even if it later recovers.

The equity figure also decides what can be withdrawn: most platforms allow withdrawal only of free margin, so an account with a large floating loss may be unable to release funds until it is closed.

Comparing the equity curve with the balance curve in a journal review is revealing: a wide gap between them means the method relies on holding losers, which the balance line alone would never show.

A common mistake

Judging a strategy by its balance curve while ignoring the equity curve. A method that holds losers for weeks can show a smooth balance line and a terrifying equity line.

See also: Free margin, Margin level, Drawdown, Funded account.

Frequently asked questions