FAQ Section | Frequently Asked Questions

Equity refers to the equity share of an investor or company. In the trading and investment context, the term usually refers to the value actually belonging to the investor, i.e. assets less all liabilities. In the case of trading accounts, equity corresponds to the current account value including open profits and losses.

Example / association: A trading account is capitalized with €10,000. Open positions currently show an unrealized loss of € 1,200. The equity of the account is therefore €8,800 - not the original balance, but the real equity value at the current time.

Equity in margin trading refers to the current net account value of a trading account. It results from the account balance plus all open profits and minus all open losses. Equity is the key figure for margin calculation, risk monitoring and possible forced liquidations.

Example / association: A trader starts with a balance of €5,000. Open positions currently stand at +700 € profit and -1,500 € loss. → Equity = 4,200 €. Even if the starting balance is still €5,000, the broker assesses the risk solely on the basis of the equity, not on the basis of the original deposit amount.

In trading, balance refers to the pure account balance without taking open positions into account. It only includes realized gains and losses and only changes when positions are closed or deposits or withdrawals are made. The balance does not reflect the current market risk. 

Example / association: A trader deposits €10,000. After several closed trades, the account balance is €11,200. → The balance is €11,200, even if there are currently open positions that are temporarily in profit or loss. Only when these positions are closed does their result affect the balance.

Unrealized P/L (floating P/L) refers to the current, as yet unrealized profit or loss from open positions. The value changes continuously with market developments and has a direct effect on equity, but not on the balance. The floating P/L is only realized when a position is closed. 

Example / association: A trader opens a position with a stake of €1,000. The market moves against him, the position currently stands at € -350. → The floating P/L is -350 €. The balance remains unchanged, while the equity is reduced accordingly.

Margin is the security deposit that a broker retains when entering into a leveraged position. It is not a cost factor, but tied-up capital that is used to hedge open positions. The amount of the margin depends on the position size, leverage and instrument.

Example / association: A trader opens a position worth €50,000 with a leverage of 1:10. → He must deposit €5,000 margin for this. This sum is not freely available during the term of the position, but remains part of the equity.

Used margin is the part of the equity that is currently tied up as collateral for all open positions. This capital is not available for new trades, but remains part of the account value. Increasing position sizes or additional trades increase the used margin. 

Example / Association: A trader holds two open positions. Position A requires €2,000 margin, position B €1,500. → The total used margin is €3,500. Regardless of whether the positions are in profit or loss, this amount is tied up until positions are reduced or closed.

Free margin refers to the freely available portion of equity that is not tied up as margin. It determines whether and to what extent new positions can be opened or existing positions expanded. If the free margin falls to zero, there is no more room for maneuver.

Example / association: A trading account has equity of €8,000. Of this, €5,500 is tied up as used margin. → The free margin is € 2,500. If the equity continues to fall due to losses, the free margin is also automatically reduced - even without opening new trades.

Margin level is a ratio that describes the ratio of equity to used margin. It is expressed as a percentage and is used by brokers as a key risk indicator to assess how heavily a trading account is utilized. If the margin level falls below defined thresholds, margin calls or stop-outs can be triggered 

Formula (implicit): Margin Level = (Equity ÷ Used Margin) × 100 

Example / Association: An account has an equity of €6,000 and a used margin of €3,000. → Margin level = 200 %. If the equity falls to € 3,000 due to losses, the margin level drops to 100 %. Many brokers start imposing restrictions or warning mechanisms from this level onwards.

A margin call is a warning or intervention threshold that is reached when the margin level of a trading account falls below a value defined by the broker. The trader is informed that the available equity is no longer sufficient to adequately hedge the open positions. In this phase, new positions are often no longer possible.

Example / association: A broker defines a margin call at 100% margin level. If a trader's equity falls so far as a result of losses that it corresponds to the used margin, a margin call is triggered. → The trader must reduce positions, add capital or avoid further losses to prevent escalation

Stop-out refers to the broker's automatic intervention in which open positions are forcibly closed as soon as the margin level falls below a critical threshold. The aim is to prevent a negative account balance and limit the residual risk for brokers and traders. Closure usually takes place without the trader's consent. 

Example / association: A broker sets the stop-out at 50% margin level. If the equity of an account falls to half of the used margin, the broker begins to close positions automatically - usually starting with the most loss-making position - until the margin level is above the threshold again.

Leverage describes the ratio between the equity capital invested and the actual market volume moved. By using leverage, a larger position can be controlled with a comparatively small amount of capital. Leverage amplifies profits and losses in equal measure and has a direct effect on margin, equity and margin level.

Example / association: A trader uses leverage of 1:20 and invests €2,000 in equity. → He thus moves a market volume of € 40,000. A price movement of just 1% therefore already corresponds to a profit or loss of €400 - based on an invested equity capital of €2,000.

Drawdown refers to the percentage or absolute decline in the account value (usually equity) from the highest level reached to the subsequent low point. It is a key indicator for risk assessment, as it shows how much an account has been impacted in the meantime - regardless of the final result.

Example / association: A trading account rises from €10,000 to €14,000 equity and then falls to €11,000. → The drawdown is €3,000 or around 21% in relation to the high. Even if the account is still in the black, the drawdown shows the strain that had to be endured in the meantime.

Realized P/L refers to the finally booked profit or loss that results from closing a position. Only when it is realized does the result become a fixed component of the balance and is no longer dependent on the market.

Example / association: A position is closed with a profit of €1,200. → This amount is booked as Realized P/L and immediately increases the balance of the account.

Realized PnL refers to the finally booked profit or loss that results from closing a position. Only when it is realized does the result become a fixed component of the balance and is no longer dependent on the market.

Example / association: A position is closed with a profit of €1,200. → This amount is booked as Realized P/L and immediately increases the balance of the account.

Position size refers to the actual size of an individual trading position, measured in units, lots or contract volume. It is one of the central parameters of risk management, as it determines how strongly price movements of an instrument affect profit, loss and equity.

Example / association: A trader trades a CFD on an index with a position size of 5 contracts. → If the index moves by 10 points and one point corresponds to €2, this results in a profit or loss of €100. Regardless of the leverage used, the position size determines the real effect of a market movement.