Balance vs equity: how daily drawdown is really measured

On MetaTrader 5 your account shows two figures that look alike but behave very differently: balance and equity. Many daily drawdown rules are measured against one of them, and the choice decides when your day is over. This article explains the difference in plain words, shows why a floating loss can count against you before you close anything, and walks through a simple worked example.

Two numbers on the same screen

Open the Trade tab in MT5 and look at the bottom line. You will see Balance, Equity, Margin and Free margin. Two of these matter for daily drawdown.

• Balance is the money in the account from closed trades only. It changes when a position is closed, when a swap or commission is charged, or when you deposit or withdraw.
• Equity is balance plus or minus everything still open. If you hold a gold position showing a floating loss, equity is lower than balance. If it shows a floating gain, equity is higher.

Put simply: balance is what you would have if nothing were open; equity is what you would have if you closed everything at this moment, at the current price.

Balance-based and equity-based daily limits

A daily drawdown rule needs two things: a starting point and a way of measuring how far you have fallen from it. Rule sets differ on both.

The starting point

Some firms take the balance at the start of the day. Others take whichever is higher of balance and equity at that moment, so a floating gain held over the reset can raise the line you are measured from. The reset time also varies; many rule sets use midnight broker server time. More on that in daily loss and broker midnight.

What is measured

A balance-based limit only looks at closed results. A position can sit deep in a floating loss and the rule does not react until you close it.

An equity-based limit looks at live equity, tick by tick. The moment open losses plus closed losses for the day reach the limit, the rule is breached, whether or not you have closed anything.

Why floating losses count the moment they appear

Under an equity-based rule, a floating loss is treated as real for the purpose of the limit. The reasoning is simple: the firm is exposed to the position now, not when you decide to close it.

This has a few practical effects:

• A trade you plan to “hold until it comes back” can breach the day before it ever has the chance.
• A short spike against you can be enough, even if price recovers within minutes.
• Several open positions add up. Their floating losses are counted together, on top of what you have already closed that day.
• A floating gain on one position can offset a floating loss on another, but only while both are open.

Gold can move several dollars in a short time around news, so on XAUUSD the gap between balance and equity can open quickly.

A worked example in plain arithmetic

All figures below are examples only, chosen to make the arithmetic easy. They are not suggestions for any account, limit or position size.

Say the example daily limit is 500, measured from the 10,000 starting point. The line sits at 9,500.

1. Under a balance-based rule, balance is still 9,800 in the last row. Only the closed loss of 200 counts, so nothing is breached yet.
2. Under an equity-based rule, equity is 9,480. That is below 9,500, so the limit was breached the moment the floating loss on B passed 300. Closing B afterwards does not undo it.

Now take a rule whose starting point is the higher of balance and equity. Suppose at 00:00 you held a position with a floating gain of 150, so equity was 10,150. With the same example limit of 500, the line would be 9,650, not 9,500. If that position then turns against you, you have less room than the balance alone suggests.

Habits that fit equity-based rules

• Know your line in money terms before the session starts, worked out from your own firm’s formula.
• Count the worst case of everything open, not just what is closed. See how lot sizes add up.
• Remember that a stop loss is filled at the next available price. A gap or slippage can carry it past where you placed it.
• If you trade two accounts, each has its own line; see running two prop accounts.

Where Spectar FX Gold fits

Spectar FX Gold is a subscription service for MetaTrader 5, for gold (XAUUSD). You set every rule yourself, including the daily stop, and the tool holds it. The daily stop is counted from 00:00 broker server time, the way prop firms usually count it, and when it is reached the day locks: no new trades until the next day. It runs on your own account; we never receive your broker password, never hold funds, set no numbers and give no signals. A daily stop is a setting, not a promise: a gap or slippage at the broker can carry a position past any limit. Plans are MANUAL, SEMIAUTO and AUTO, with an 8-day free trial on MANUAL monthly. More in the FAQ and the overview for prop traders.

Related: Daily loss limit and broker server midnight · What happens when the daily stop is reached