Understanding Account Balance

What does "Account Balance" signify?

To commence trading in the forex market, you must first open an account with a retail forex broker or CFD provider. Once your account is approved, you can proceed to deposit funds into it.

It's important to note that this new account should only be funded with "risk capital," which essentially means money you can afford to lose.

The term "Account Balance," often referred to simply as "Balance," represents the initial amount of funds in your account. In simple terms, it's the cash available in your account.

Here's a straightforward analogy:

• Balance = Cash

Your Balance reflects the amount of cash you have at your disposal in your trading account. For instance, if you deposit $1,000, your Balance is $1,000.

Importantly, your account balance remains unaffected when you enter a new trade or, in trader jargon, "open a new position," until that position is eventually closed.

In essence, 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 maintain a position overnight and either receive or pay a swap/rollover fee.

Although the primary focus here is on margin, it's worth briefly mentioning swap and rollover concepts since swap fees can impact your Balance.

It's essential to recognize the distinction between a short-term trade lasting a few hours and a trade that you keep open overnight.

The process of moving open positions from one trading day to the next is known as a rollover. Most brokers automatically perform the rollover by closing any open positions at the end of the trading day and simultaneously opening an identical position for the next business day. During this rollover, a swap fee is calculated.

A swap fee is either paid or charged to you at the end of each trading day if you maintain your trade position overnight. If you receive a swap, cash is added to your Balance. Conversely, if you are charged a swap fee, cash is deducted from your Balance.

Unless you are trading with exceptionally large position sizes, swap fees are typically modest but can accumulate over time.

In MetaTrader, you can view swaps related to your open positions (if held for longer than one day) by accessing the "Terminal" window and clicking on the "Trade" tab.