The term equity generally refers to the level of ownership that is attributed to a company. Its value is what these shareholders would get if a company is liquidated, its assets are sold and its liabilities are paid off. However, in margin accounts, equity refers to the total value of securities minus any balance owed.
Within the stock market, equity refers to the current value of a public company’s shares. But for other organizations, it is the value due to shareholders based on professional valuations.
Before you understand how to calculate the financial position equity, you need to understand what position means in finance.
What Is a Financial Position?
In finance, a financial position refers to the asset amount that an individual owns or sells short within the stock market. But it also includes your equity and liabilities, which will reflect in your account status if you are an investor who uses trading tools.
Within organizations, a financial position refers to the current balances of all the liabilities, assets and equity that the businesses own. That information is usually recorded within a balance sheet and lets you know how healthy a company is.
For traders, position refers to their expression of market commitment, which defines a trade that has been canceled recently or can make or lose money. Such positions take the form of long or short positions.
When you have a long position, you own an asset and would make money on it if it appreciates. However, if you have a short position, you have sold an asset you do not own at a higher price intending to make money when the asset’s value falls so you can repurchase it back more cheaply. So, when you buy company stock or sell short, you are taking a position.
Also, there is position value. It refers to the current market value of your portfolio position. The net shares you hold will determine that value.
So, when people discuss position equity, they are talking about the remaining portion of their financial interests after a company has deducted its liabilities from total assets.
However, people who trade regularly may also be referring to their level of ownership in different securities and whether they hold long or short positions in those securities.
Calculating Financial Position Equity
You can calculate financial position equity depending on whether you are an individual or a company. Below is a simple procedure for calculating financial position equity.
Start by determining the total assets your company owns. You may have to add the total of individual assets to come up with the overall value. But usually, the balance sheet contains all the information you need.
Second, calculate the total liabilities your company has. That should include both short-term and long-term debt.
To calculate the company’s financial position, subtract total liabilities from total assets. For example, if your company has assets totaling $10 million and liabilities worth $4 million, the shareholder’s equity is $6 million.
However, it can be challenging to calculate your share of the equity. But if you know your percentage stake or the number of shares compared to the outstanding shares, you could calculate your share of the company’s financial position equity.
Suppose you own 5 percent of the entire company. In that case, you can calculate 5 percent of $6 million to get $300,000 as your share.
For Individual Investors
To calculate your position equity, you should add up all the shares you hold in a particular stock or how many contracts you own in the futures market. You can also calculate your position equity within the forex market.
Second, determine the current market value of each share or the difference between your current and purchase futures contract price.
Multiply the total number of shares by the current price to get your stock market position equity. For example, if you own 2,000 shares of company PQ and the share price is currently $10, your position equity is $2,000 x 10, which is $20,000.
On the other hand, if you own a futures contract, you can calculate your equity by determining the difference between your current price and the purchase price and multiplying it by the number of contracts and underlying units you have.
For example, if you bought three futures contracts of 1,000 barrels of oil at $60 per barrel, and they are currently trading at $80 per barrel, your position equity would be ((1,000 x 80) - (1,000 x 60)) x 3, translating to financial position equity of $60,000.
If you invest in the forex market, to determine your position equity, the rate at which your base currency rises will be multiplied by the total number of base currency units. For example, if you bought a forex contract of 200,000 units of SGD/USD and the Singaporean dollar increases by 0.0025, your position equity would be $500.
Final Thoughts on Position Equity
Knowing your financial position and position value will enable you to determine your financial position equity. And that equity will help you understand your stake in company stock and futures or forex contracts.
- Nasdaq: Equity
- Corporate Finance Institute: Equity
- Nasdaq: Financial position
- Accounting Tools: Financial position definition
- Finance Train: Long and Short Positions in Financial Assets
- Stockopedia: Position Value
- Thinkorswim: Position Statement
- APAServices.Org: Financial Statements 101:How to Read and Use Your Balance Sheet
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