Account Balance in Position Sizing

Account balance generally refers to the total funds in a trading account, not counting any currently open, unrealized positions. This is the figure most commonly used as the starting point in the position sizing formula, since it represents a clear, settled amount of capital.

It's worth distinguishing account balance from account equity. Equity generally reflects account balance adjusted for the current unrealized profit or loss of any open positions. Because open positions can fluctuate in value, some traders prefer using equity for position size calculations, as it more accurately reflects current available capital, while others use balance for simplicity and consistency.

As covered in the earlier lesson on percentage-based risk, since position sizing is calculated relative to current balance (or equity), this figure needs to be reviewed before each new position sizing calculation, rather than relying on an outdated figure from a previous session, particularly after account balance has changed due to prior trades.