What is equity in forex?

Equity is what your trading account is worth at this moment: the balance plus the floating profit or loss of every open position. The balance changes only when a trade closes. Equity moves with every tick while trades are open.

The formula in MT5

The MetaTrader 5 help defines equity as:

Equity = Balance + Credit − Commission ± Floating profit/loss − Blocked

Credit is an amount the broker has given the trader on credit, not money deposited. On an account with no credit and nothing blocked, equity comes down to the balance plus the floating result of the open positions. With no open positions, equity equals the balance.

You see it in the Trade tab (View → Toolbox → Trade). The account line shows Balance, Equity, Margin, Free margin and Margin level, and turns red when the account is in the Margin Call or Stop Out state.

A worked example

Why equity matters more than balance

• Margin. Free margin is equity minus margin, and the margin level is equity divided by margin. Margin calls and stop-outs are triggered by equity, whatever the balance says.
• Loss limits. Many drawdown rules count open losses. At FTMO, for example, the Maximum Daily Loss and Maximum Loss are measured on equity, “Balance + Open Positions P/L ± Swaps – Commissions”, as of October 2026 (FTMO trading objectives). A trailing drawdown moves up with a high point: in FTMO’s 1-Step programme that high point is the highest balance recorded at midnight CE(S)T on any earlier trading day, or the initial capital if that is higher, while the limit is checked against equity. The guide to prop firm daily drawdown compares the rules.

The common mistake

Watching the balance. A trader with an untouched balance can already be past a daily limit through floating losses, and a trade closed at a loss does not “cost” equity at that moment: the loss was already in it. The drawdown calculator shows how many losing trades in a row take an account to a daily or maximum loss limit.

Equity in PipWarden

PipWarden works from equity in three places, each applied before every order:

• Position size. The lot size is set so that a loss at the stop price is at most your risk percentage of equity, 1% by default, rounded down to the broker’s lot step.
• Daily loss limit. Today’s loss is the start-of-day balance minus current equity, so open losses count. At the limit, 5% by default, the trade is skipped as “Daily loss limit reached” and no new trades open until the next UTC day. Open positions stay open and are still managed.
• Free margin. By default, a trade is skipped as “Not enough free margin” if, after its margin, free margin would fall below 20% of equity.

None of these closes a trade that is already open. Open trades run to their stops, and prices can gap. More on setting the limit in how to set a daily loss limit.