What exactly is “Account Balance”?
To begin trading forex, you must first create an account with a retail forex broker or CFD provider.
After your account has been approved, you can transfer funds into it. This new account should be funded only with “risk capital,” or money you can afford to lose.
The “Account Balance” or simply “Balance” of your account is the initial balance.
Simply said, it is the amount of CASH in your account.
Your Balance represents the amount of money in your trading account.
If you deposit $1,000, your balance will be $1,000.
When you start a new trade, or “open a new position,” your account balance is not changed until the position is CLOSED.
That is, your Balance will only change in one of three ways:
1. When you add extra dollars to your account.
2. When a position is closed.
3. When you leave an open position overnight and either receive or pay a swap/rollover fee.
Because the topic is about margin, the concepts of swap and rollover are unrelated, but for completeness, we’ll briefly cover them because swap costs do effect your Balance.
Just keep in mind that there is a distinction between a trade that lasts a few hours and one that you keep open overnight.
A rollover is the process of shifting open positions from one trading day to the next. Most brokers automatically perform the rollover by closing any open positions at the end of the day and creating an identical position for the next business day.
A swap is calculated during this rollover.
If you keep your deal open overnight, you will be charged or paid a swap fee at the end of each trading day. If you are paid in cash for an exchange, it will be added to your Balance. If you are charged a swap fee, the money will be withdrawn from your account.
These swap costs are normally minor until you trade large position sizes, but they can mount up over time.
By opening a “Terminal” window and clicking on the “Trade” tab in MetaTrader, you can view swaps on your open position (if you keep it open for more than one day).
The notion of swap and rollover is beyond the scope of this class and will not be covered further, but we wanted to touch on it quickly for accuracy.
Now that we’ve defined Balance, let’s look at the ideas of “Unrealized P/L” and “Realized P/L” and how they effect your Balance.
