Balance, Equity and Drawdown Explained

Balance

Your balance is the cash in your account that is not currently tied up in open trades. It is the money you could withdraw right now if you closed all positions. When you open a trade, your balance does not change — the money has simply moved from "available" to "in use as margin." Your balance only changes when a trade is closed: the realised profit or loss is added to or subtracted from it.

Equity

Your equity is your balance plus the floating profit or loss on all your open trades. It is the best real-time estimate of what your account is worth at this moment. If you have $10,000 in balance and $1,500 of unrealised profit on open trades, your equity is $11,500. If those trades were instead $2,000 in loss, your equity would be $8,000.

Equity is the number to watch, because it reflects your true position including open risk. Many platforms show both — do not confuse them.

Drawdown

Drawdown is the decline in equity from a previous peak to a subsequent trough. It is usually expressed as a percentage. If your equity reached $12,000 and then fell to $9,600 before recovering, that is a 20% drawdown.

Drawdown matters more than most people realise:

• •It measures the real pain of a strategy. A 50% drawdown means your account was, at its worst, worth half of its peak.
• •Recovery is harder than it looks. To recover from a 50% loss, you need a 100% gain — not a 50% gain. This is why deep drawdowns are so dangerous.
• •It tests your discipline. The question is not just whether the strategy recovers, but whether you will still be copying when it does. Many copiers quit during drawdowns and lock in their losses.

Maximum drawdown vs average drawdown

A track record may report both the maximum drawdown (the worst peak-to-trough drop over the entire history) and the average drawdown (the typical size of drops during normal trading). The maximum tells you the worst case so far; the average tells you what to expect day to day. Neither guarantees the future — a strategy can always set a new, deeper maximum.

How to use these numbers

When you evaluate a trader on our Performance page, look at all three together:

• •Balance tells you the account size, which sets the context for the returns.
• •Equity (or the equity curve) shows you the real-time journey, including unrealised swings.
• •Drawdown tells you how bad it got, and therefore whether you could psychologically tolerate copying this strategy.

If the maximum drawdown is larger than you could stomach, the strategy is not suitable for you — no matter how good the returns look.