Trading in the foreign exchange market is a risky activity and requires smart financial management to achieve sustainable profits. During the trading process, investors often face many different financial concepts. Including Balance and Equity. These concepts play an important role in financial management in forex trading. So, in this article. Join Learn Forex Trading to learn about the concept of what is Balance, the difference between Equity and what is Balance, and important factors in managing Balance in forex trading.
Concept of what is Balance?
Balance is the investor’s trading account balance at a specific time. This is the amount of money an investor has in his account after calculating all previously opened and closed trading orders. If the account balance is positive. That means the investor is making a profit, and if the account balance is negative, it means the investor is incurring a loss. Balance is considered one of the most important indicators in forex. Because it shows the investor’s financial situation and directly affects their ability to trade and make investment decisions in the future.
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Why is Balance management important?
Balance management in forex trading is very important. Because it helps traders control risk and enhance long-term profits.
Balance in forex trading is often understood as the total amount of money you have in your trading account. When you open an order to buy or sell a currency pair. That amount will be locked in the order until the order is closed. So, balance management ensures that you have enough funds to open new orders and close existing ones.
In addition, balance management also helps you minimize risks when trading. If you place too many orders without managing your balance well. You can quickly lose all your trading account funds and not have enough funds left to close your current positions. This can lead to unfortunate losses and affect your confidence in forex trading.
Finally, balance management also helps you increase profits in the long term. By keeping your balance at a safe level. You can continue to trade and take advantage of opportunities as the market develops. You can focus on finding better trading opportunities and increasing your profits sustainably over the long term.
In short, balance management is an important part of forex trading. And it plays an important role in helping you control risk. Enhance your profits and become a successful trader.
How to Manage what is Balance
To effectively manage balance in forex trading, there are a few ways you can do it:
Determine the appropriate level of risk
Before you start trading, you should determine the level of risk you can accept. This risk level will help you calculate how much you can invest in each trade. And helps you avoid losing too much money in one order.
Set up a trading plan
Setting up a trading plan is an important part of balance management. This plan includes determining entry points, stop loss points, and take profit points. When you establish a clear trading plan. You will know the risk level of each order and can manage your balance more effectively.
Use of funds
Funds are the money you have in your trading account that you have not placed on orders. By retaining a portion of the funds. You can ensure that you have enough funds to close existing positions and open new ones.
Limit the number of orders open at the same time
If you are opening too many orders at once, you can easily lose control of your balance. Limit the number of open positions at once and use appropriate risk management strategies. To ensure that you can manage your balance effectively.
Consider using leverage
Using leverage can help you increase profits, but it can also increase risk. You should consider using leverage carefully and only use a level of leverage appropriate to the level of risk you can accept.
In short, to effectively manage the balance in forex trading. You need to establish a clear trading plan. Use funds and limit the number of orders opened at the same time. Determine the appropriate level of risk and consider using leverage carefully. In addition, you should also evaluate and monitor your trades regularly to adjust your trading plan if necessary. Effective balance management in forex trading is important to minimize risk and increase profit opportunities. By applying effective balance management methods. You can increase your chances of success in forex trading.
Other notes when managing what is Balance
- Avoid trading too many positions at the same time. Opening multiple positions at the same time can cause loss of risk control and lead to account losses. Therefore, you should focus on a few positions and manage them closely.
- Determine when to enter and exit the market. You should determine when to enter and exit the market to minimize risk and maximize profits. Never let losses last too long or profits for too long.
- Regularly check your account. You should regularly check your account balance. And make sure your Balance is in stable condition. If you discover that your Balance is decreasing. Pause trading and review your strategy.
Other notes when managing Balance
What is Equity?
Equity represents your trading account’s current value and volatility when looking at the trading platform on your screen. It is the total account balance and all floating profits/losses from open positions.
When your current trade increases or decreases in value, that’s your Equity.
*How to calculate Equity if you do not open a transaction
If you do not open any positions then your Equity is the same as Balance.
Equity = Balance
*How to calculate Equity if you have open trades
If you are opening positions then Equity is the sum of your account balance and floating P/L in your account.
Equity = Balance + Floating Profit/Loss
For example:
- When the current trade is losing money
Equity = Balance + Floating Profit/Loss
950 USD = 1000 USD + (-50USD)
- When the current trade is profitable
Equity = Balance + Floating Profit/Loss
1.100 USD = 1000 USD + 100 USD
Your Equity account continues to fluctuate with the current market price for as long as you have a trading position open. Equity shows the TEMPORARY value of the account at the current time. That is why Equity is considered a “floating balance account” and only becomes a “real balance account” if you close all trades immediately.
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What is the difference between Equity and what is Balance?
Equity (capital) and Balance (account balance) are two important concepts in forex trading.
- Equity: Equity is calculated as the total value of all open orders in your account plus the amount of the bonus or trading fee (if any). Equity is often used to measure the value of your account at the current time.
- Balance (account balance): Balance is the amount of money you have in your account at present. This is the amount you have deposited into your trading account and has not been deducted from any trading orders.
The difference between Equity and Balance is that Equity is calculated according to the actual value of open orders in your account. While Balance is the amount of money you have deposited into your account. When you close some orders, Equity and Balance may change. When you close the order with profit or loss. Your Equity will be updated and your account balance (Balance) will stay the same or change depending on the result of the order.
You must manage Equity and Balance in your trading. To ensure that you have enough funds to close orders and avoid taking too much risk in trading. You should monitor both of these indicators regularly to evaluate the effectiveness of your trading strategy.
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Epilogue
Above the article Learn Forex Trading has shared with you the concept of Balance and many interesting things surrounding it. So what is Balance? In forex trading Balance is the money balance you have in your trading account after calculating all the transactions that have been made. The difference between Balance and Equity is very important in risk management and money management in forex trading.
Equity represents the current equity value of a trading account. Equity will be affected by price fluctuations of open orders. Includes unrealized gains and losses, as well as other fees and expenses.
Meanwhile, Balance is not affected by the prices of open orders. Which only reflects the amount of money you have in your trading account. So Balance is a more accurate measure of your funds in your trading account.
Understanding the difference between Balance and Equity is important for risk management and money management in forex trading. By managing Balance and Equity effectively. You will be able to ensure that you are trading safely and profitably.
