Equity
Definition
Equity is the total value of your trading account, calculated as your balance plus or minus the unrealized profit or loss from all open positions. It represents the real-time value of your account and is used to calculate margin level and determine whether a margin call is triggered. Equity fluctuates with every market tick while positions are open.
Related Terms
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Pip
A pip (percentage in point) is the smallest standard unit of price movement in forex trading. For most currency pairs, a pip equals 0.0001 (the fourth decimal place). For JPY pairs, a pip is 0.01 (the second decimal place). Pips are used to measure price changes, calculate profits and losses, and define spread costs.
Pipette
A pipette is a fractional pip, representing the fifth decimal place in most currency pairs (0.00001) or the third decimal place in JPY pairs (0.001). Pipettes allow brokers to offer tighter spreads and more precise pricing. They are sometimes called micro pips or fractional pips.
Spread
The spread is the difference between the bid (sell) price and the ask (buy) price of a financial instrument. It represents the primary transaction cost for traders and a source of revenue for brokers. Tighter spreads indicate higher liquidity and lower trading costs, while wider spreads are common during low-liquidity periods or high-volatility events.
Lot
A lot is a standardized unit of measurement for the quantity of a financial instrument in a trade. In forex, a standard lot equals 100,000 units of the base currency. Mini lots (10,000 units), micro lots (1,000 units), and nano lots (100 units) are also available, allowing traders to adjust their position sizes for precise risk management.
Leverage
Leverage allows traders to control a larger position size with a smaller amount of capital by borrowing funds from the broker. Expressed as a ratio (e.g., 1:100), it means controlling $100,000 with just $1,000 of margin. While leverage amplifies potential profits, it equally magnifies potential losses and increases risk exposure.
Margin
Margin is the amount of capital required in your trading account to open and maintain a leveraged position. It acts as collateral or a good-faith deposit, not a transaction fee. Required margin is calculated based on the trade size and leverage ratio. If your equity falls below the required margin, you may receive a margin call.
Balance
Balance is the total amount of funds in your trading account, reflecting only closed trades. It does not include unrealized profits or losses from open positions. Your balance changes only when a trade is closed, a deposit is made, or a withdrawal is processed. The difference between balance and equity represents your floating P&L.
Swap
A swap (also called rollover interest) is a fee charged or credited to your account for holding a position overnight. It reflects the interest rate differential between the two currencies in a forex pair. Swap rates can be positive (you earn interest) or negative (you pay interest), depending on the direction of your trade and prevailing interest rates.
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