What is Balance?

What does “Balance” mean?

In order to start trading forex, you need to open an account with a retail forex broker or CFD provider.
Once your account is approved, then you can transfer funds into the account.
This new account should only be funded with “risk capital”, which is cash you can afford to lose.
The account balance or simply “Balance” is the starting balance of your account.
Basically, it’s the amount of CASH in your account.
Think of it this way:

Balance = Cash

Your Balance measures the amount of cash you have in your trading account.
If you deposit $1,000, then your Balance is $1,000.

If you enter a new trade or in trader lingo, “open a new position”, your account balance is not affected until the position is CLOSED.
This means that your Balance will only change in one of three ways:

1. When you add more funds to your account.
2. When you close a position.
3. When you keep a position open overnight and either receive or pay swap/rollover fee.

Since the topic is about margin, the concepts of swap and rollover aren’t really related but for thoroughness, we’ll quickly describe it since swap fees do affect your Balance.
Just know that there’s a difference between a trade that lasts a couple hours and a trade you keep open overnight.

The procedure of moving open positions from one trading day to another is called rollover.
Most brokers perform the rollover automatically by closing any open positions at the end of the day, while simultaneously opening an identical position for the following business day.
During this rollover, a swap is calculated.
A swap is a FEE that is either paid or charged to you at the end of each trading day if you keep your trade open overnight.
If you are paid swap, cash will be added to your Balance.
If you are charged swap, cash will be deducted from your Balance.
Unless your trading huge position sizes, these swap fees are usually small but can add up over time.
In MetaTrader, you can see swaps on your open position (if you keep it open for longer than 1 day) by opening a “Terminal” window and clicking on the “Trade” tab.

The concept of swap and rollover is beyond the scope of this lesson and will not be discussed further, but we just wanted to cover if briefly for accuracy’s sake.
Now that we know what Balance means, let’s move on to understanding the concepts of “Unrealized P/L” and “Realized P/L” and how they affect your Balance.