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. Your drawdown limits are measured against equity, which means an open position moving against you can breach a limit before you ever click close.
This is the single most common surprise for newer traders. You can see a green balance and still fail, because the limit is not watching your balance. It is watching your equity, in real time, tick by tick.
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 while 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 that matters for your limits.
Why open trades matter for breaches
Your daily drawdown and your maximum drawdown are both measured against equity, not balance. Real prices flow into the simulation from third party feeds, so your equity reacts to the live market exactly as a funded account would.
The consequence: a floating loss on an open trade counts immediately. If a position drifts far enough against you, your equity can touch a drawdown limit while the trade is still open and your balance still looks healthy. The breach is real, and closing the trade afterwards does not undo it.
This is why position sizing and stop placement matter more than the balance figure on your dashboard. Watch equity. Your exact daily and maximum drawdown levels for your plan 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 crossed your drawdown level, that would have been a breach, 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 that is the number your limits are watching.
Related
What is margin and what is a margin call?
What is a profit target and how is it measured?