Equity Ratio Monitoring

Equity ratio monitoring is the continuous process of tracking the relationship between a trader's total account equity and their total position size. It is the primary method for assessing the health of a portfolio in a leveraged environment.

By monitoring this ratio, traders can identify when their risk exposure is becoming too high and take corrective action before a margin call occurs. This involves looking at both the unrealized profit or loss and the volatility of the underlying assets.

Modern trading platforms often provide real-time dashboards to help with this monitoring. However, relying solely on these tools is dangerous; traders should also have their own calculations.

It is a fundamental practice for anyone involved in derivatives trading. Consistent monitoring is the best defense against sudden, unexpected liquidations.