Equity vs Balance

Understanding the difference between equity and balance is critical for prop firm traders because drawdown rules may be calculated on one or the other.

Definitions

• Balance: The cash value of your account based on closed trades only. It only changes when you close a position.
• Equity: Balance + unrealized profit/loss from open positions. This fluctuates in real time.

Example

| | Balance | Equity |

|---|---------|--------|

| Start of day | $100,000 | $100,000 |

| Open trade losing $500 | $100,000 | $99,500 |

| Trade recovers to +$200 | $100,000 | $100,200 |

| Close trade at +$200 | $100,200 | $100,200 |

Why This Matters for Prop Trading

Equity-Based Drawdown

Your drawdown is measured against real-time equity. Even if you don't close the trade, a floating loss of $3,000 on a $3,000 trailing drawdown = account breached.

Balance-Based Drawdown

Only closed trades count. You could have a $5,000 floating loss, but as long as you don't realize it and your balance stays above the limit, you're safe.

End-of-Day (EOD) Drawdown

Some firms only check drawdown at the end of the trading day. Intraday fluctuations don't count.

Check Your Firm's Rules

This is one of the most important details to verify:

• Equity-based (real-time): Most restrictive — Apex, TopStep
• Balance-based (closed trades): More forgiving
• EOD: Only checked once per day — Earn2Trade