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What Is Equity in Forex and Its Importance in Trading?

Understanding equity and its relation to profit and loss in forex trading is essential for investors.

By Marcel Deer

Edited by Janet Barben

Published November 22, 2023.

a man sitting at a desk managing a stock portfolio

Successful forex traders generally understand the role equity plays in their trades. A trader’s account equity, trading balance, margins, and leverage are interconnected, and knowing how they interact is crucial to earning profits.
» Need help with forex trading? See our forex tips for beginners﻿
Definition of Equity in ForexEquity is the total value of a trading account. This includes the account balance, unrealized profits, or losses from all currently open positions.
For example:
A trader with a $5,000 account balance opens a position on a currency pair that moves favorably, earning a profit of $50. The account equity will then be $5,050. Equity considers all open positions, so if the currency pair led to a loss of the same amount, $50, the equity would then be $4,950.
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The Relationship between Equity and MarginMargins are the funds you put up to open positions and use leverage. The funds in the account balance not tied up in open positions are known as a free margin. Account equity is the sum of your free margin and the gains or losses from margins in open positions.
» Understanding the terminology is crucial: Basic forex terms﻿
Equity as a Risk Management ToolSmart traders will know how to analyse trades that increase their account equity. It is a handy metric to set stop-loss and take-profit orders on open positions. Maintaining a positive equity level means the net profits from all open positions outweigh the net losses.
» Ready to begin your trading journey? Learn more about opening an account with Fortrade﻿

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Be Aware: You can lose all, but not more than the balance of your Trading Account. These products may not be suitable for all clients therefore ensure you understand the risks and seek independent advice. You do not own, or have any interest in, the underlying assets. Fortrade Canada Limited is an Order Execution Only broker, and does not provide investment advice or recommendation. Fortrade is a member of the Canadian Investment Regulatory Organization (CIRO) and a member of the Canadian Investor Protection Fund (CIPF). Fortrade Canada Limited is authorised to provide CFD trading services in all provinces in Canada except Quebec. Residents of Alberta province are required to be Accredited Investors to trade CFDs.

CFDs are complex and highly speculative instruments, which come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing all your invested capital. Be Aware: You can lose all, but not more than the balance of your Trading Account.
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What Is Equity in Forex and Its Importance in Trading?

Definition of Equity in Forex

The Relationship between Equity and Margin

Equity as a Risk Management Tool

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