equity - definition

Equity represents the current real-time value of a trading account, calculated as the account balance plus or minus any unrealised profit or loss from open positions. It fluctuates continuously as market prices move, reflecting the true financial standing of the account at any given moment. Equity applies to all open positions in any instrument, including forex, CFDs, and commodities, and is the basis for margin calculations and risk assessment.

Formula

Equity = Balance + Unrealised P/L

Example

A trader in Australia deposits AUD 10,000 into their account and opens a long EUR/AUD position. The position moves in their favour, generating an unrealised profit of AUD 450. The trader's equity is now AUD 10,000 + AUD 450 = AUD 10,450. If the position later reverses to show an unrealised loss of AUD 200, equity drops to AUD 9,800.

Edge cases

When no positions are open, equity equals the account balance exactly, as unrealised P/L is zero.
For accounts denominated in AUD but trading JPY pairs, unrealised P/L must be converted to AUD at the current exchange rate before calculating equity.
Under ASIC regulations, brokers must calculate equity in real-time for margin calls; a drop in equity below the required margin triggers automatic position closure.

See also