After previously exploring the concept of balance in the MT4, we are now presenting another concept related to the financials of your account, the equity. In this educational article, we will present what equity is, what it is used for, and how it is different from your balance.
What is Equity?
Equity is the total capital in your account at any given time, including the floating profit or loss from open trades. This amount reflects your balance, any commission charges, credits or bonuses, floating profit or loss from trades, and swaps.
The following formula reflects what your equity includes:
Equity = Balance + Credit + Profit/loss + Swap + Commission
What is the Purpose of Equity?
Equity tells you how much money you have in your trading account at any given time.
Keep in mind that your equity shows the available funds in your account plus or minus any fees. Based on this data, you can decide what your next steps in the financial markets are going to be.
What is the Difference Between Equity and Balance?
Your balance does not reflect the bonuses you may receive from Traders Trust, your open trades, and any associated fees or charges.
If you open a trading account at Traders Trust and fund it with $1,000, once you open the trading account on the MT4 platform, your balance and equity will show $1,000. Whilst no trades are open, your Balance will always be the same as your Equity.
If you receive a bonus like the 200% Deposit Bonus, your balance will remain at $1,000, your credit will be $2,000 and your equity will change to $3,000 as it includes all those values.
If you open a position, your balance will remain at $1,000, while your equity will change according to the floating profit or loss (PnL) of your open trades. The equity will reflect a changed amount depending on the profit or loss (PnL) of the trade you have opened, the account fees, the spreads of the instrument on which you have opened the trade, and – depending on how long you have opened the trade for – the swaps or storage fees charged or added to your account.
In short, your balance only reflects the funds in your account, while your equity includes the profits or losses of the trades, any credit, and any commissions.
Continue advancing your trading knowledge with educational articles from Traders Trust and use the knowledge you have gained to support smarter investment decisions.