You've learned in the previous lesson that margins affect how much leverage you can take. However, another factor impacts the margin, as well. Your account balance dictates how much margin you can have.
In this lesson, you'll learn all about account balance and its part in forex trading.
Lesson Highlight
- Account balance refers to how much money you have in your trading or investment account.
- You can check your account balance online or on paper statements provided by financial institutions, such as banks and brokers.
- Your trading or investment account balance can fluctuate daily due to changing market prices that affect your open positions.
- Many factors can affect how account balance you have, such as trade fees, deposits, and withdrawals.
Account Balance in Trading
An account balance pertains to the sum you have deposited into a financial depository. When dealing with banks, your account balance is either in a savings or checking account.
In trading, the account balance represents the amount of funds you currently possess in your trading account. Unlike banks, your trading account balance is stored in a brokerage account instead of a savings or checking one.
Simply put, your account balance is how much cash you have "on hand."
How to Check Your Account Balance
You can check your account balance through several means:
- Online portals. Many banks and brokers have websites and mobile applications where you can log into your account and check your current balance.
- Paper statements. You can view your account's current balance through bank-issued and billing statements from credit cards, loans, and utilities.
- Talking to representatives. You can inquire about how much balance you presently have in your account by contacting a representative of your bank or broker. You can do this through phone calls or visiting their office in person.
What Affects Your Account Balance?
Various factors affect your account balance. Some common examples include:
- Deposits. Injecting additional funds into your account directly increases how much balance you have. Account deposits can come from many sources, such as bank transfers and transaction reimbursements.
For instance, if you have a USD 150.00 balance in your account and you deposited USD 300.00, your account balance will increase to USD 450.00
- Withdrawals. Contrary to deposits, withdrawals reduce the amount in your account. If your account balance is USD 450.00, withdrawing $200.00 will decrease your balance by that amount, leaving you with USD 250.00 in your account.
- Trade fees. Trade fees are the costs you incur when you execute trades. These fees can take many forms.
For example, a broker may charge a flat fee of USD 5.00 per trade, regardless of each trade's size. Another broker may take a percentage-based payment for each trade you make. In this case, your trade fee will depend on a fixed percentage of your trade's value.
- Trade profits and losses. The outcomes of your trades can impact how much balance you have in your account. Because your account is directly linked to your open positions, your profits increase your balance while each loss eats up a portion.
Why It's Important to Maintain Your Account Balance
Many trading concepts, such as margin trading and leverage, are tied to account balances. Therefore, learning how to maintain a robust account balance is a crucial part of your trading journey.
Some reasons why you should keep a close watch on your trading account balance include:
- Margin Requirements
- Trading Costs
- Margin Calls and Stop-Outs
You will know more about these concepts in future lessons. For now, it’s important to remember that they are vital to keeping your trades profitable.
In the next lesson, you'll learn about unrealized and floating profits and losses.
