The short answer
Balance is what your account is worth from trades you have already closed. Equity is your balance plus or minus the profit or loss of any trades still open right now. Because your open positions move your equity in real time, a trade drifting against you can move your account towards a drawdown limit before you ever click close. This is why UZO measures your drawdowns on equity, so nothing is hidden and every position you hold is accounted for. The exact way your plan measures drawdown is shown on your dashboard.
This is the single most common point that surprises newer traders. Your balance can look calm and green whilst your open trades quietly move your equity in the other direction, in real time, tick by tick. Balance and equity are not the same number, and understanding the gap between them is one of the most useful things you can learn.
Balance defined
Balance is the settled value of your account. It only changes when a trade closes. Open a position and your balance does not move at all whilst that trade is running. Close it, and the realised profit or loss is added to or subtracted from your balance.
Think of balance as the official, locked-in number. It is calm and slow. It ignores everything currently floating on your open trades.
Equity defined
Equity is the live, true value of your account if you were to close every open trade at this exact second. The formula is simple:
Equity = Balance + open profit/loss
If your open trades are in profit, equity sits above balance. If they are losing, equity sits below balance.
Equity moves every time the price moves. With no trades open, equity and balance are identical. The moment you open a position, they separate, and equity becomes the number worth watching.
Why open trades count towards your drawdown
Your drawdown is monitored on equity, in real time, not only when a trade closes. Real, live prices flow into the simulation, so your equity reacts to the market tick by tick. That means your open positions count towards your risk, including their floating profit and loss, not just your settled balance.
The consequence is straightforward: a floating loss on an open trade counts immediately. If a position drifts far enough, your equity can reach a drawdown level whilst the trade is still open and your balance still looks healthy, and closing the trade afterwards does not undo a limit that has already been reached.
Your daily drawdown limit is measured against your equity through the trading day and resets at 00:00 UTC, so each day begins with a fresh allowance. Your maximum drawdown watches your equity over the life of the account. Because both look at equity, the way to stay comfortably inside them is to watch your equity, size your positions with room to spare, and place your stops deliberately. The figure on your dashboard is your true position, not the balance line above it.
Your exact daily and maximum drawdown levels for your plan, and how they are measured, are always shown on your dashboard.
A quick example
Say your balance is 10,000 and you open one trade.
Moment | Balance | Open P/L | Equity |
Trade open, price flat | 10,000 | 0 | 10,000 |
Price moves against you | 10,000 | minus 400 | 9,600 |
Trade still open, price recovers | 10,000 | plus 150 | 10,150 |
You close the trade | 10,150 | 0 | 10,150 |
Notice the second row. Your balance never left 10,000, but your equity dropped to 9,600. If 9,600 had reached your drawdown level, it would have counted, even though you never closed in the red. Only when you close does the realised result settle back into your balance.
The takeaway
Balance is the past. Equity is now. Trade to protect your equity, because your open positions move it in real time and your drawdowns are measured on it.
Related
What is margin and what is a margin call?
What is a profit target and how is it measured?