What is equity?

Beginner Questions
1

Hello guys. Of course I read this Leverage and Margin Defined | The Number 1 Cause of Death of Forex Traders | Learn Forex Trading and this Margin Call Exemplified | The Number 1 Cause of Death of Forex Traders | Learn Forex Trading
but I can’t understand what is equity. The thing I can’t understand is:

[B]Usable Margin = Equity - Used Margin[/B]
[B]Equity = Usable Margin + Used Margin[/B]

Now the question is: how can the equity go down? I think I’d know the answer if I used metatrader 4 to set my orders and not only to analyze graphs :frowning:

Thanks guys

2

It’s exactly what is says.

If you had an account with $1,000.00 in it, all of it is “equity”.

When you open a trade, you use part of your “equity” to hold that trade open.
That part you used to open the trade is “used margin”.

Subtract that from your equity to get “usable margin”. That is the amount left over that your trade gains or losses operate in. If your trade is losing, you chew into that usable margin, and see a decrease in your equity.

If your trade is profitable, you see your usable margin, and equity rise.

1 Like
3

Thanks a lot, just another question: so I get a margin call when my equity becomes less than used margin, it means that my usable margin must fall below 0? Thanks a lot again

4

As a simple definition, equity is the cash in your account plus (minus) the profits (losses) you have on open trades.

5

Hello rhody and thanks. With this definition of equity, how can I get a margin call? Thanks in advance

6

You will get a margin call when equity falls below the margin required for the position(s) you are holding.

7

Equity is the value of your account if all your position are closed.