Balance is the money in the account after all closed trades. Equity is balance plus the profit or loss on positions still open, valued at current prices. The difference is the floating profit or loss. If the balance is £10,000 and open positions are £600 underwater, the equity is £9,400. The £600 is not a loss yet in accounting terms. It is a loss in every other sense.
Why the distinction matters
Balance changes only when a trade closes. A strategy that never closes losing trades has a balance that only rises, and a chart of it looks like a straight line upward. Its equity, meanwhile, falls with every open loss. When the losses are finally closed, or the broker closes them at a stop out, the balance drops all at once to meet the equity. The smooth line was never real.
This is the mechanism behind almost every "no losing months" record. It is also why any performance chart should be an equity chart, and why a record that shows only balance is hiding the part that matters.
Reading the numbers in MetaTrader 5
The Trade tab shows balance, equity, margin, free margin and margin level along its bottom edge. Free margin, equity minus margin, is what is available for new positions. When equity falls, free margin falls with it, and the margin level, equity as a percentage of margin used, approaches the broker's margin call and stop-out thresholds. Equity is the number that decides whether the account survives.
Floating loss as a warning
A large floating loss relative to balance is a warning regardless of what the balance says. Ten per cent of the account underwater in open positions means the account has already lost ten per cent and has simply not written it down. If those positions have no stops, the loss is open-ended.
Two accounts each show a balance of £10,000 and a balance chart rising steadily for six months. Account A has one open position with a floating loss of £80, so its equity is £9,920. Account B has seven open positions with a combined floating loss of £2,900, so its equity is £7,100. On the balance chart they look identical. Account B is in a 29 per cent drawdown.
When judging an EA's record, look at the equity curve, not the balance curve, and look at the gap between the two at the worst points. A verified record that shows both is showing you the truth. If only balance is shown, assume the equity was worse and ask by how much.
When running an EA, watch the floating loss on the Trade tab. An EA that closes losing trades at their stops keeps the floating loss small and short-lived. An EA whose floating loss grows for days is holding losses, and the balance it reports means nothing until they are closed.