The difference between balance and equity
Why drawdown is calculated on equity, and when the two numbers diverge.
Balance is only the result of closed trades; equity is that balance plus the profit or loss of trades open right now. Every drawdown calculation at Propia runs on equity.
With no open trades the two numbers are exactly equal. The moment you open a trade, equity starts to move while balance stays still until the trade is closed.
- Balance: $10,000
- One open trade with a floating loss of $300
- Equity: $10,000 − $300 = $9,700
For drawdown purposes the figure that counts is $9,700, not $10,000. If your floor is $9,500, you are only $200 away.
If you watch only the balance, you may think you have plenty of room left while your equity is already close to the line.
Frequently asked questions
Why is the calculation on equity rather than balance?
Because if balance were the basis, a breach could be postponed indefinitely by holding a heavily losing trade open. Equity shows the real, live state of the account.
Related articles
The most you may lose in one trading day, the difference between the basis of the calculation (balance) and what is measured (equity), and a worked example per product.
The cap on how far the account may fall from its initial balance, how it differs from daily drawdown, and a worked example per product.
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