GUIDE TO DIFFERENTIATING BALANCE – EQUITY – FREE MARGIN
Forex EAs Mall will help you understand and differentiate the three most common terms in the foreign exchange market: Balance, Equity, and Free Margin.
- What is Balance?
Simply put, this is the initial balance in your account. To start trading Forex, you need to open a trading account and deposit some money into your account.
If you deposit $1000, then your Balance is $1000. This balance is the maximum amount you can lose.
BALANCE = INITIAL BALANCE
If you enter a new trade, your account balance will not be affected until the trade is CLOSED.
This means that your Balance will only change in one of the following ways:
- When you deposit more money into your account.
- When you close a trade.
- What is Equity?
Equity is understood as the owner’s equity or the actual capital – the current value of your trading account.
Actual capital (Equity) is the sum of the Account Balance and the total profit/loss from open trades (Floating profit).
EQUITY = BALANCE + FLOATING PROFIT
Since prices are constantly moving, Floating profit always changes, so Equity fluctuates as well.
If your account DOES NOT have any open trades (Floating profit = 0), then Equity = Balance.
For example: You deposit $1000 into your account. Balance = $1000.
- If you haven’t made any trades in the market: Equity = Balance = $1000.
- If you make a trade and currently have a loss of $50 (Floating Profit = -50$), then Equity = 1000 + (-50) = 950$.
Equity is called actual capital because it reflects the true value of your account. Equity is much more important than Balance
- What is Free Margin?
Free margin is the difference between Equity (Owner’s Equity) and Used Margin (Margin used).
Free margin refers to the portion of the trader’s equity that is NOT tied up in open trades.
Free margin can be used to open new trades.
FREE MARGIN = EQUITY – USED MARGIN
As seen from the formula above, if your trading position is profitable, Equity will increase, and Free Margin will increase accordingly. This can help you open more trades if you wish.
- FREE MARGIN is the amount of money not tied up by open trades and can be used to open new trades.
- When FREE MARGIN is 0 or less, you will not be able to open new trades.
Note:
*Risk Warning: Before you start trading, you must fully understand the risks involved in leveraged trading and have the necessary experience to work in the Forex market.
At Forex EAs Mall, we don’t just see a volatile Forex market; we see a future where every trader can achieve stability and success. Our vision is to lead in providing intelligent, reliable, and accessible EA solutions that help customers overcome the challenges of the market. We aim to create a strong trading community where knowledge and experience are shared, and support is provided to help each other grow. With continuous innovation, Forex EAs Mall will lead the Forex market into a new era of transparency, efficiency, and sustainable profits.
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