Balance vs Equity: The Difference, With an Example

Balance is what your account is worth counting closed trades only. Equity is what it is worth right now, including the profit or loss of trades still open. With no trade open the two numbers are identical, and the moment one is open they separate by its unrealised profit or loss.

The gap matters because a loss limit measures one of them and not the other. FundedNext's daily loss limit counts unrealised profit and loss, which makes it a limit measured on equity, and that is how an open losing trade can end an attempt you never closed.

What is balance?

The realised value of the account. FTMO's FAQ on the two terms says: "Balance represents the realized value of your account and changes only when a trade is closed or when a deposit or withdrawal is processed." It also says plainly: "Open (unrealized) positions do not affect the Balance." And in one line: "Balance reflects results from closed trades only".

FTMO's formula for it:

Balance = deposit - withdrawals + realized total net profit and loss

So the balance moves only when a trade closes or money goes in or out. Between those it sits still, whatever the market is doing to your open positions.

What is equity?

The real-time value of the account. FTMO again: "Equity represents the real-time value of your account and reflects its current value including open positions", and "Equity fluctuates continuously based on the profit or loss of open trades." Its one-line version: "Equity reflects the actual current value of the account".

Their formula for equity:

Equity = Balance + unrealized net profit and loss

LiteFinance and BrokerXplorer put the costs on the equity side instead. LiteFinance's version:

Equity = balance + current result of the opened positions + swap - broker's commission

BrokerXplorer's has the same shape, with the latest outcome of the open trading positions in place of the current result. Both describe the same account as FTMO's formula does, and they differ only in whether swap and commission are shown in the equity line or have already been taken inside the balance. The costs land somewhere either way, so check where your own platform puts them.

Balance vs equity, side by side

Round numbers, chosen for the arithmetic. This is an illustration, not any real account:

Situation	Balance	Equity
No trades open	$10,000	$10,000
One trade open, $300 down	$10,000	$9,700
One trade open, $300 up	$10,000	$10,300
That trade closed at $300 down	$9,700	$9,700

In the last row, closing the trade does not change your equity by a cent. It moves the loss from the equity line to the balance line. A trader holding a loser to avoid taking the loss has already taken it, as far as equity is concerned, and every rule that reads equity has already seen it.

Several open trades behave the same way, added together. Two positions $300 down each leave the balance at $10,000 and the equity at $9,400, so a rule reading equity is looking at a $600 loss before either trade has been closed.

Balance vs equity vs free margin

Free margin is the third number on the same screen, and it comes from equity rather than balance.

BrokerXplorer describes it as what is left after margin is deducted from equity, and as the amount available for opening new positions. So a floating loss reduces equity, equity reduces free margin, and free margin reduces what else you are able to open. Most trading platforms show balance, equity and free margin together for that reason.

A losing position shrinks what you can do next: the size you had planned for your next setup is no longer available, while the balance on the same screen has not moved at all.

Which one does a drawdown limit measure?

A limit that includes unrealised profit and loss is measured on equity, whatever name sits above it. A rule called a drawdown limit or a daily loss limit can be built on either number, so read the clause rather than the heading.

FundedNext's own CFD rules page defines its daily loss limit as: "A cap on how much you can lose in a single day. Includes realized and unrealized P&L, swap, and commission. Breaching it closes the account." The same page adds that the limit is set as a percentage of your initial balance and "Resets daily at 0:00 server time."

The same FundedNext page gives its profit target as "Calculated on closed trades only", so the number you need to pass reads your balance while the daily limit that can end the attempt reads your equity.

Put figures on it, using the illustration above and the 5% daily loss limit FundedNext publishes for its Stellar 2-Step account:

• Initial balance $10,000, so a 5% daily limit allows $500 and puts the floor at $9,500.
• One trade open, $300 down. Balance still reads $10,000. Equity reads $9,700.
• The limit has already used $300 of its $500, on a trade you have not closed.

Limits differ by firm and by account model, and the lifetime limit on the same page comes in a static form fixed to the starting balance and a trailing form that rises with your profits, so read the rule for the account you are actually on. Our guide Prop Firm Backtesting: See Which Challenges Your Strategy Would Pass goes through how those rules get checked, maximum drawdown in its static, trailing and intraday forms included.

How does the difference show up in a backtest?

In whether your worst moment was a closed loss or an open one.

A backtest that logs only closed trades records the $300 loss once, at the close. It does not record that the account spent two hours $300 down, or $600 down before it came back. Against a rule that watches equity, the closed-trade version of your history is the flattering one.

Judge a trade by its worst point as well as its result: a strategy that wins after sitting deeply negative carries a different risk from one that wins straight away, and it is the first kind that runs into a daily limit. And put your costs in before you read anything, because they move both numbers. In ChartLabs, per-symbol commission and slippage feed into every trade's P&L, balances and analytics. The analytics include an equity curve, and Quick Stats carries a Closed Trades count beside the P&L figures.

ChartLabs has a Prop Firms scorer for this exact question. It re-scores the trades from your backtest against prop firm rules and returns one of four verdicts, Pass, Almost, Not yet or Failed, each naming the single rule that held you back. It also re-scales those trades at different risk levels, which shows how much of a drawdown breach was the strategy and how much was the size you traded it at. It reads your own backtested history, and it does not connect to a firm, place trades or provide funding.

The trades in a manual backtest are trades you took and closed. If the rule you are aiming at counts unrealised losses as they happen, treat your backtest as evidence about your strategy and the firm's own platform as the judge of the rule.

For the workflow rather than the vocabulary, start with Backtesting a Trading Strategy: A Beginner's Guide.

See it on your own numbers

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