Balance, Equity, Margin, Free Margin and Margin Level; what exactly does each indicate and represent. How are they calculated?
These account indicators can be overwhelming to grasp and understand but are extremely important in indicating the overall “status” of your trading account. Ignoring their understanding can put your account at risk!
Balance
The balance is self explanatory in the sense of the word. It indicates your account balance excluding any profit, loss, commissions and fees on open positions. Once a trade is closed your balance is adjusted accordingly.
Equity
Your equity is a running indicator of your balance, including all open position profit, loss, commission and fees. Equity updates in real time, in simple terms, reflecting your current account value. Once open positions are closed your equity will reflect your balance.
Margin
Margin or margin requirement is an amount required to open the specific position. It can be seen as collateral on the trader's side. It is linked with your account leverage or given as a percentage requirement.
Free Margin
The free margin is calculated by deducting your margin from your equity. This indicates your available/free margin. This does not mean that you can bind the entire available margin to open positions. Margin levels come into play to prevent this.
Margin Level %
Margin level is one of the most important account statistics. It gives you a statistical indication on the balance between equity and margin as a percentage. This is calculated by dividing your equity by your margin, then multiplying it by 100, indicating your margin level percentage. Your broker will have an acceptable ratio/percentage before a margin call is triggered.
