Balances in EW products
In the EW product range, we will find ‘balances’, ‘capital’, and ‘equity ‘in various places. This article explains what they mean and how they relate to each other. It also explains how to handle deposits and withdrawals, as these affect the account balances.
| Type | Description | EA parameter | Formula |
|---|---|---|---|
| Account balance | Account Balance represents the total amount of money in the trading account, excluding any open positions. | ||
| Account equity | The Account Equity is the current value of the trading account, including the balance and the unrealized profit or loss from open positions. |
Equity = Balance + Unrealized Profit/Loss |
|
| Initial balance | Initial value of trading account. |
_InitialBalance |
|
| Daily beginning balance | Represents account balance at the beginning of a trading day. | ||
| Daily return | Unrealized daily return. |
Daily return = Account equity - Daily beginning balance |
|
| Total return | Unrealized total return. |
Total return = Account equity - Initial balance |
|
| Virtual account size | Account size as basis for position sizing calculations. Can be the same as the initial balance or set higher/lower to mimic another account size (over leverage). |
_ReferenceAccountSize |
|
| Percentage capital allocated | Percentage of virtual account size allocated to this expert advisor. |
_PercentageOfBaseCapital |
|
| Capital allocated | Total capital as basis for position sizing. |
Capital allocated = _ReferenceAccountSize * _PercentageOfBaseCapital |
Whenever a deposit or withdrawal is made, the initial balance in the expert advisor must be updated. For example, if the initial account size was 5,000.00 USD and a deposit of 1,000.00 USD is made, the initial balance in the expert advisor should be set to 6,000.00 USD. Otherwise, the total return calculation would indicate an excessively high total return. In the case of a withdrawal, the opposite applies.
However, it is a personal choice whether to update the virtual account size in the advisor. This does not affect the return calculation, only the position sizing. Therefore, with a withdrawal, the leverage or risk will increase if the virtual account size is not updated, but this can be intentional.
The Virtual account size comes with the parameter Percentage capital allocated. If multiple expert advisors are running on the same account, it is possible to distribute the virtual account size among the different advisors, potentially with different weights. For example, with three advisors, the distribution could be 30%, 30%, and 40%. The advantage of this is that other trade parameters can remain unchanged without affecting the overall strategy.
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