Equity vs Balance: What a Floating Loss Means

By Rise Together FX team · 6 min read

Flat balance line with an equity line dipping below it, the shaded gap labelled floating loss

Open a trading account in MetaTrader 5 (MT5) and you'll see two numbers that look as if they should match: balance and equity. They often don't, and the gap between them can be the most important number on the screen. This guide explains what each one means, what a floating loss is, and why a smooth-looking balance can hide a large loss.

Trading forex and CFDs is high risk and you can lose all the money you put in. Most retail CFD accounts lose money. This article is general education, not financial advice.

Balance, equity, margin and free margin on the MT5 screen

In MT5 these figures appear on the account line of the Trade tab:

Balance: the money in the account from deposits, withdrawals and closed trades. It doesn't include trades that are still open.
Equity: the balance plus or minus the current profit or loss on open trades (plus any broker credit, less certain charges). It's roughly what the account would be worth if everything were closed now.
Margin: the money set aside to support open trades.
Free margin: equity minus margin, what's available to open new trades.
Margin level: equity ÷ margin × 100, as a percentage. Brokers use this to decide margin calls and stop outs.

If there are no open trades, balance and equity are the same. As soon as trades are open, they can differ.

Floating profit and loss

The profit or loss on a trade that's still open is called floating (or unrealised) profit or loss. It changes with every price move.

A floating loss becomes a realised loss when the trade is closed, whether you close it, the strategy closes it, or the broker closes it at stop out.
Until then, the loss is already real in one important sense: it has already reduced your equity, and equity is what your broker uses to decide whether to close your trades.

Illustrative example (made-up numbers to show the mechanics; not based on any real account or on our strategy):

Balance: £3,000. You open trades, and price moves against them.
Floating loss: £600.
Balance: still £3,000. Equity: £2,400.

Nothing has been "lost" on the balance line, but the account is worth 20% less than it shows. If those trades are closed now, the balance drops to £2,400.

Why balance can look calm while equity falls

Balance only changes when trades close. So a strategy that closes its winning trades quickly and keeps its losing trades open can show a balance that rises in small, regular steps while equity falls.

Illustrative example (made-up numbers, continued):

Stage	What happens	Balance	Floating loss	Equity
Start	No open trades	£3,000	£0	£3,000
Weeks 1–4	10 small winning trades closed at £15 each, while one group of trades stays open and falls	£3,150	£900	£2,250
Week 5	The losing group is closed	£2,250	£0	£2,250

Look at the balance line alone and weeks 1–4 show a gain, from £3,000 to £3,150. But by week 4 equity had fallen 25%, from £3,000 to £2,250. When the losing trades were finally closed, the balance fell £900 in one step, about 29% from its high.

The balance didn't show the loss as it built up. It only showed it at the end, all at once.

Balance vs equity drawdown on track records

Drawdown is the fall from a peak in an account's value to a later low. It can be measured on balance or on equity:

Balance drawdown only counts closed trades. A strategy that holds losing trades open can show a small balance drawdown for a long time.
Equity drawdown includes open trades, so it shows how far the account really fell while trades were open.

MT5's own strategy-testing report lists both separately, as "Balance Drawdown" and "Equity Drawdown". Track-record websites and reports may show drawdown on balance, on equity, or both. Before you rely on any drawdown figure, check:

Which one it is. An equity drawdown figure is usually the more informative one.
How it's measured. For example, whether it's the largest fall from any peak, or only from the starting deposit.
Over what period. A short record has seen fewer kinds of market. A past drawdown isn't a limit: the next one can be deeper, up to the loss of all the money in the account.

See What is drawdown in trading? and How to read a MyFXBook track record.

Why this matters for strategies that hold losing trades open

Some strategies are designed to hold losing trades open and wait for price to come back. Grid and martingale-style strategies are the main examples. They open more trades as price moves against them and close the whole group when price recovers enough.

For these strategies:

The balance line can look smooth for long periods, because most groups of trades close at a small profit.
The real risk is in the equity line, which shows how much is being lost on the trades still open.
The gap between balance and equity can grow quickly in a strong one-way move, especially if later trades are larger.
When a losing group is finally closed, by the strategy or by a stop out, the balance can drop sharply in a single step, as in the table above.

So the question to ask of any strategy is not just "how smooth is the balance?" but "how far has equity fallen while trades were open, and how far could it fall?" Grid trading vs martingale shows how these losses build up, and Margin call vs stop out explains what happens when equity falls too far.

Our own strategy is an automated grid on AUDCAD in which later trades can be larger, a martingale-style approach. Everything in this article applies to it. Read our full risk warning.