What Is the Difference Between Balance and Equity in MT4?
Balance and equity are two of the most important values displayed in the MT4 Terminal window, and the distinction between them is fundamental to understanding the state of a trading account. Balance shows the cash result of all closed trades. Equity shows balance plus the unrealised profit or loss of all open positions. When positions are closed, the two values are equal. When positions are open, they diverge, and the size of the divergence is the floating profit or loss of the account at that moment. This article explains how each value is calculated, why they differ in real time, how they relate to margin and free margin, and why the distinction matters in practical trading.
What Balance Represents
Balance is the cash result of all closed trades on the account. It includes the realised profit and loss from every position that has been closed, plus any deposits and withdrawals, plus any commissions and swaps applied at the time positions were closed.
Balance changes only when a trade closes or when a deposit, withdrawal, or other cash adjustment is processed. While a position is open, its profit and loss is not reflected in the balance. The balance can sit unchanged for hours or days, even as floating profit or loss accumulates on open trades, because nothing has been realised yet.
The balance value is shown in the Terminal window at the bottom of the Trade tab. It is the “cash on hand” view of the account, assuming all open positions were to close at exactly their entry prices.
What Equity Represents
Equity is balance plus the floating profit or loss of all open positions. The floating profit or loss is the unrealised result of each open trade if it were closed at the current market price.
Equity updates in real time as prices change. If the open positions are profitable, equity is higher than balance. If they are at a loss, equity is lower. The difference between equity and balance is therefore a live snapshot of the account’s open exposure.
Equity is the figure that matters for margin calculations and for assessing the true current value of the account. When prices move against open positions, equity falls even if balance remains the same. When prices move in favour of open positions, equity rises.
How They Differ in Real Time
The relationship between balance and equity is straightforward.
If there are no open positions, equity equals balance. If open positions are in profit, equity is greater than balance. If open positions are at a loss, equity is less than balance. The difference equals the sum of floating profit and loss across all open positions.
As an illustration, suppose an account has a balance of $10,000 and one open position that is currently showing a floating profit of $250. Equity is $10,250. If the position then moves into a $150 loss, equity becomes $9,850. The balance remains $10,000 throughout, because no position has been closed.
The next time a position closes, its floating result is realised and applied to the balance. After the close, balance and equity converge again, with the position’s final result baked into the new balance.
Margin, Free Margin, and Margin Level
Three other values in the Terminal depend directly on equity.
Margin is the total amount of cash currently committed as collateral for open positions. It is calculated from each position’s notional value divided by the account’s leverage. For a $100,000 EUR/USD position at 1:100 leverage, the margin required is $1,000.
Free Margin is equity minus margin. It represents the cash available to open new positions or to absorb adverse price moves on existing ones. As floating losses grow on open positions, equity falls, and free margin falls with it.
Margin Level is equity divided by margin, expressed as a percentage. It is the value brokers use to trigger margin calls and stop outs. A common threshold pattern is a margin call at 100% margin level (when equity equals margin used) and a stop out at 50% (when equity falls to half of the margin used). Specific thresholds vary by broker and regulatory jurisdiction. ESMA-regulated brokers in the EU enforce a 50% margin close-out rule for retail clients.
| Value | Formula | Updates |
|---|---|---|
| Balance | Realised result of closed trades | When positions close |
| Equity | Balance + floating P/L | In real time |
| Margin | Required collateral for open positions | When positions open or close |
| Free Margin | Equity – Margin | In real time |
| Margin Level | (Equity / Margin) × 100 | In real time |
Why the Distinction Matters
The practical importance of distinguishing balance from equity comes down to one fact: balance overstates the cash actually available when positions are at a loss. A trader who looks only at balance and ignores equity may see what appears to be a healthy account while floating losses on open positions are eroding margin level toward a forced close.
Equity is the figure that determines whether a margin call or stop out is imminent. A balance of $10,000 means nothing if equity has fallen to $2,000 because of a large adverse move on open positions. The account is one further adverse tick from receiving a margin call regardless of what the balance reads.
The same logic applies in the opposite direction. A balance of $10,000 with floating profits of $5,000 means the account is effectively worth $15,000 right now, with the floating profits available as additional margin support for any new positions opened. The balance alone underrepresents the current state.
For traders managing multiple open positions, equity is the headline figure. Balance is useful for tracking realised performance over time, but moment-to-moment account management depends on equity.
Tracking Performance
For performance review, balance is the relevant figure. It is the cumulative realised result of all trading activity and is unaffected by the noise of open-position fluctuations. Most performance metrics, including profit factor, average win, average loss, and equity curves over time, are based on changes in balance.
For risk management, equity is the relevant figure. Drawdown calculations, position sizing decisions, and margin assessments all rely on equity, because equity reflects the cash actually at risk in real time.
A trader who confuses the two ends up either over-trading (treating high balance as if it is available cash when equity is lower) or under-trading (treating low balance as a constraint when equity is actually higher because of floating profits). Both errors are common in early trading and are usually corrected by getting comfortable with how the two values interact.
Frequently Asked Questions
What is the simplest difference between balance and equity? Balance reflects closed trades only. Equity is balance plus the floating profit or loss of all open positions. When no positions are open, the two are equal. When positions are open, equity moves with the market while balance does not.
Why does equity change when balance does not? Equity includes the floating profit or loss of open positions, which updates in real time as prices change. Balance only changes when a position is closed, when a deposit or withdrawal is processed, or when other cash adjustments are applied. While positions remain open, prices can move significantly without affecting balance.
Which value matters more for margin calls? Equity. Margin level is calculated as equity divided by margin, so margin calls and stop outs are triggered by changes in equity. A trader monitoring balance alone may not see a margin call coming until equity has already dropped close to the threshold.
What happens to balance when I close a profitable trade? The floating profit on that trade is realised and added to balance. The next balance value reflects the closed result. Equity also adjusts as the floating profit is removed from the open positions calculation. After the close, balance and equity are aligned for the new account state.
Can equity go below zero? In principle equity can become negative if a position moves significantly against the account before it is closed. Most retail brokers prevent this through stop out mechanisms and, for EU-regulated retail clients, negative balance protection, which closes positions before the account falls below zero. In faster markets or gaps, negative equity can still occur briefly before protection takes effect.
What does it mean if equity is much lower than balance? It means the open positions are at a substantial floating loss. The account is exposed to further losses if prices continue moving in the same direction. A large gap between balance and equity is a warning sign that requires attention to margin level and position management.
Are balance and equity the same on weekends? Balance is the same on weekends as it was at Friday’s close, because no trades are processed. Equity is also the same, because forex markets are closed and prices do not update. When markets reopen on Sunday evening, prices may gap, and equity can move immediately as floating P/L is recalculated against the new market levels.