Equity Ratio

The equity ratio is a measure of the proportion of a trader's own capital in a position compared to the total value of the position. It provides insight into the level of risk the trader is assuming.

A high equity ratio implies lower leverage and less risk of liquidation. A low equity ratio indicates high leverage and high sensitivity to price changes.

Traders track this ratio to ensure their positions remain within their personal risk tolerance. In professional trading, managing the equity ratio is more important than chasing high returns.

It helps in maintaining a long-term perspective in volatile markets. It is a key metric for portfolio health.