Balance is the amount present in the account and does not include the current unrealised result from open positions. It includes the result of deposits and withdrawals, as well as the result from positions that have already been closed.
Formula: Balance = Transactions (deposits and withdrawals) + Realised P/L (closed positions)
Equity is the amount that most accurately reflects the total funds in the account. It includes the balance and the sum of unrealised profits and losses (Unrealised P/L) from positions that are still open.
Formula: Equity = Balance + Floating P/L
Margin is the amount that is frozen by the broker in the client's account to open and maintain a position.
Formula: Margin = Price for financial instrument/Leverage
Free margin is the amount of equity in the account that is not currently tied up as collateral for open positions.
Formula: Free margin = Equity – Margin
Margin Level is a metric used to assess the risk of an investor's account. It is calculated as a percentage by dividing the account's equity by the used margin (the amount currently tied up in open positions).
Formula: Margin Level (ML) = Equity/Margin*100
Unrealised P/L (Profit and Loss) refers to the potential profit or loss on open positions that have not yet been closed and deals that have been closed during the current trading day according to server time. At the end of the day, based on server time, all closed deals are converted into account currency and become trades on the trading platform.
Example:
1. The client deposits $10000 into their account. Conditions: Leverage ratio is 1:20.
2. The client buys 1 share of Walmart for $77.75.
In-the-moment calculations:
Equity: - 0.26 + 10000 = 9999.74
Margin: 77.75/20 = 3.89
Free margin: 9999.74 – 3.89 = 9995.85
Margin level: 9999.74/3.89*100 = 257062.72%
