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Balance and Equity

Balance vs Equity

Risk management

Definition

Balance is what is in the account based on closed trades only. Equity is the balance plus the profit or loss of open positions. Most prop firms check for hitting the drawdown floor based on Equity, in real-time, even when the floor itself is only updated at the end of the day.

Detailed explanation

This is the difference that surprises most traders: the end-of-day balance is far from the floor, but in the middle of the day an open position dropped, the equity touched the floor and the account was disqualified, even if the price recovered a minute later. This also matters on the profit side. With an intraday trailing threshold, the peak is measured by equity, including unrealized profit, so a trade that went up and returned to the entry point can leave the floor higher.

An example from the prop world

An account with a drawdown of $2,000 closed yesterday at $50,500, and its floor is $48,500. Today an open position reaches a floating loss of $2,000: the balance is still $50,500, but the Equity has dropped to $48,500 and touched the floor. In most firms, this is enough to disqualify the account.

How it works at the firms on this site

Based on the rules listed on our firm pages. Rules get updated, so check the firm's page before buying.

Risk calculator

How many contracts to open against your stop and the account's loss limit

Maximum loss limit

The maximum amount an account may fall below its reference point before it's disqualified. At prop firms it's also called the MLL (Maximum Loss Limit), and each firm calculates it differently: intraday trailing, end-of-day trailing or static.

End-of-day (EOD) trailing drawdown

End-of-day drawdown (EOD Drawdown) is a trailing maximum loss limit rule in which the loss threshold moves up only once a day, based on the closing balance. At most firms, however, the threshold itself is enforced in real time, so touching it during the trading day fails the account.

Intraday trailing drawdown

This is a risk management limit calculated continuously in real time throughout the trading day. It tracks the account's peak balance (including realized profits and unrealized profits from open positions), so the loss threshold always rises together with the peak balance while keeping a fixed distance, but never goes down; crossing this threshold at any moment (even for a single second) causes immediate failure or closure of the account.

Trailing drawdown

A drawdown threshold that rises with the account's peak and never goes down. As the account makes money, the floor follows it up at the same distance, until a lock point the firm defines.