Introduction
The Number That Never Lies
Every trader watches profit.
Smart Money watches equity.
Equity shows your true account value,
not what you hope it is,
not what it was,
but what it is right now,
while trades are alive and risk is real.
📍 Equity isn’t balance, it’s reality.
What Is Equity?
The Definition:
📊 Equity is your account’s current value,
including all open floating profits and losses.
It equals:
Balance + Open P/L = Equity
If you’re in drawdown, equity drops.
If your trades are in profit, equity rises.
💬 In simple terms:
Equity shows the live health of your account.
📍 It’s the number prop firms care about most.
Why Equity Matters
Equity helps you understand:
- Your real-time risk exposure
- Whether you’re approaching drawdown limits
- If your floating losses are too large
- When to reduce risk or close trades
- How far you are from challenge violation
💡 Balance tells the past, equity tells the present.
How Traders Manage Equity
1️⃣ Always check equity before placing new trades
2️⃣ Never ignore floating drawdown
3️⃣ Stop trading if equity approaches limits
4️⃣ Only risk what your equity can support
5️⃣ Set maximum floating loss rules
📍 Your equity is your oxygen, protect it.
Example
Equity Saved, Account Saved
A trader enters multiple positions.
Balance looks good, untouched.
But floating losses push equity dangerously low.
They close one position,
reduce exposure,
and protect their account
from violating overall drawdown.
The next session delivers
a clean setup
and equity recovers.
💬 Watching equity
is how traders survive long-term.
The Do Nots
Common Mistakes Traders Make
❌ Ignoring equity and watching only balance
❌ Holding losing trades hoping they return
❌ Opening new positions while equity is dropping
❌ Violating overall drawdown unknowingly
❌ Not journaling equity changes
💬 Most traders blow accounts
because they watch balance, not equity.
Final Thoughts
Equity is the heartbeat of your account.
It tells you the truth about risk,
exposure,
and survival.
Smart Money traders succeed
because they respect equity
above everything else.
Manage equity well,
and consistency follows.