In plain English
What Account equity means
In a simple trading account, equity can be expressed as balance plus unrealized profit and loss. A broker may use bid or ask prices, depending on whether a position would be closed by selling or buying, so the displayed equity can include the effect of the bid-ask spread. Equity is commonly used in margin calculations because it reflects current open-position value.
Why it matters
Account equity is often more relevant than balance for monitoring leverage and margin pressure. If open losses reduce equity below a broker’s or regulator’s maintenance requirement, the firm may require additional funds or close positions. Exact procedures and thresholds depend on the product, agreement, jurisdiction, and broker.
Example
An account balance is $8,000. Open positions have a combined unrealized loss of $600, and $20 of accrued financing has been charged. Simplified equity is $8,000 − $600 − $20 = $7,380. If prices improve by $300 with all else unchanged, equity rises to $7,680 even though the balance remains $8,000.
Quick answers
Common questions
How is account equity calculated?+
A common simplified calculation is account balance plus unrealized profit and loss, less accrued charges. The exact platform calculation can also include credits, financing, commissions, and the prices used to mark positions.
Can equity fall below balance?+
Yes. Equity falls below balance when unrealized losses and applicable charges exceed unrealized gains and credits. In leveraged trading, that decline can affect margin availability before a position is closed.
Sources