Aayush Jindal
It is very important to keep a check on unrealised profits and losses while trading to avoid margin calls and stop out.
- An unrealised profit is a gain due to an open position/trade, which is yet to be closed, it results in an increase in the equity and turns into realised gain once the open position is closed for a profit.
- An unrealised loss is a loss due to an open position/trade which is yet to be closed, it results in a decrease in the equity and turns into a realised loss once the open position is closed for a loss.
In other words, the unrealised profit or loss is the current profit or loss on a single open trade or on all open trades, which could be realised if the trade is closed.
Balance and equity
Two important parameters to monitor while trading using Metatrader 4 are balance and equity.
- Balance equals the sum of your deposits and all realised gains or losses. It does not include unrealised profit or loss of open positions.
- Equity equals the sum of your balance plus unrealised gain or loss on a single open trade or on all open trades.
For example
Account when no positions are open:
balance: $4,000
equity: $4,000
One trade opened, EUR/USD buy at 1.1190 (1 lot) and the price moves higher by 8 pips to 1.1198
the unrealised profit is $80
balance: $4,000
equity: $4,080
floating profit/loss: + $80
Trade closed at 1.1198
balance: $4,080
equity: $4,080
Unrealised profit or loss plays a key role for the margin, if there are open positions with losses, your free margin and margin level will keep decreasing. Margin level is very significant in determining the margin call level and stop out level. Good traders always keep a close watch on unrealised profit or loss, which help them to grow their account in the long term.
