In this article, We learn about "Account Value".Let's Go!
In trading, “account value” often referred to as “account equity,” refers to the total value of a trading account at a given point in time.
It represents the total cash and securities in the trading account, taking into account both realized and unrealized profits and losses.
Here is how account value is calculated:
- Cash: This includes the initial amount deposited into the account and any additional cash deposited over time.
- Value of Securities: This includes the current market value of any securities (such as stocks, bonds, options, etc.) held in the account.
- Realized Profits or Losses: These are profits or losses from trades that have been completed, meaning the securities have been sold. Realized profits increase your account value, while realized losses decrease it.
- Unrealized Profits or Losses: These are potential profits or losses from trades that are still open. If the price of a security you own has gone up but you haven’t sold it yet, you have an unrealized profit. If the price has gone down, you have an unrealized loss. These unrealized profits or losses impact your account value, but they are not “locked in” until the trade is closed.
- Minus Any Fees and Commissions: Trading often involves fees or commissions charged by the broker. These are subtracted from your account value.
Traders monitor their account value closely as it is a key indicator of their trading performance.
If the account value is increasing over time, it means the trader is generally making profitable trades. If it’s decreasing, it might indicate a need for a change in trading strategy.
It’s also important because many trading actions, like buying on margin or short selling, require maintaining a minimum account value.
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