What is an equity curve
An equity curve is a chart of your trading account's equity over time.
Equity is your account balance plus or minus the profit or loss on positions that are still open. It is sometimes called floating profit or loss. The balance changes only when a trade closes or money moves in or out. Equity changes with every price tick while positions are open.
Formal definition: the equity curve is the time series of account equity, E(t) = balance(t) + unrealised P/L(t), sampled at regular intervals or at each trade event and plotted against time. Equity is measured in the account currency.
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Worked example (hypothetical)
Take an imaginary account that opens a long position on a currency pair (see currency pairs).
- Before the trade: balance and equity are the same, so the equity curve and the balance curve sit on the same level.
- Price moves against the position: the balance line stays flat because nothing has closed. The equity line drops by the size of the floating loss.
- Price recovers and the trade closes at a small profit: the equity line rises, and at the close the balance line steps up to meet it.
On a balance chart, this trade looks like a clean small gain. The equity curve also shows the dip in the middle. That dip is the risk the account actually carried. To put your own figures on a move like this, use the tools on the calculators page.
Equity curve vs balance curve
| Balance curve | Equity curve | |
|---|---|---|
| Changes when | A trade closes, deposits, withdrawals, swaps and commissions are booked | Constantly while positions are open, plus everything the balance includes |
| Shows open risk | No | Yes |
| Typical shape | Steps | Continuous, jagged line |
A smooth balance curve can hide a deep equity drawdown. This happens with strategies that hold losing trades open until they recover.
Where you see the term
- MetaTrader Strategy Tester: the test report graph draws balance and equity lines for a backtest. See MetaTrader 5 and MetaTrader 4.
- Account reports: statements list balance and equity. Some traders export them to plot the curve. See account statement.
- Fund and strategy reports: a "growth of capital" chart is an equity curve, usually adjusted for money added and withdrawn.
Edge cases for experienced readers
- Deposits and withdrawals move equity without any trading result. Performance curves should strip them out, for example with time-weighted return.
- Sampling frequency matters. Plotting only at trade closes understates intraday drawdown. Tick or minute data shows the true low points.
- Swaps and commissions reduce equity even when price does not move. See swap fees.
- Currency conversion: positions in instruments quoted in another currency change equity through the exchange rate as well. See currency risk.
- Leverage makes the curve swing harder. Leveraged CFD and forex trading can lose money fast. A falling equity curve can reach the broker's stop-out level and close positions automatically.
Related terms
- Exposure
- Annualized return
- CAGR
- Annualized volatility
- Fat tails and tail risk
- Risk management
- Trading psychology
- Trading glossary
Frequent questions
What is the equity curve meaning in simple words?
It is a line showing how much your account is worth over time, open trades included.
Is a trading equity curve the same as profit?
No. It includes unrealised results that can still change, as well as deposits and withdrawals unless these are adjusted out.
Why can the equity curve fall when no trade has closed?
Open positions are valued at the current price. A floating loss lowers equity right away.
Does a rising equity curve mean a strategy will keep working?
No. It describes the past only and does not predict future results.
Can I practise reading an equity curve without real money?
Yes. A demo account or a backtest in MetaTrader produces an equity curve with no money at risk.