Free Margin

Free margin is the amount of money in a leveraged trading account that is not currently committed as collateral against open positions, and is therefore available either to open additional positions or to sustain existing ones through adverse price movement. It is calculated as Free Margin = Equity − Used Margin, where Equity = Account Balance + Floating (unrealized) Profit/Loss, and Used Margin is the total collateral the broker has reserved for all open positions. Because equity updates continuously with the market value of open trades, free margin fluctuates in real time: it expands as positions move into unrealized profit and contracts as they move into unrealized loss. Free margin is closely tied to the margin level (Equity ÷ Used Margin × 100%); as free margin falls toward zero, the margin level approaches 100%, which is often the point at which an account can no longer open new trades and may approach a broker's margin-call or stop-out conditions. Exact thresholds vary by broker.

In plain English — When you trade with leverage, your broker locks away a chunk of your money as collateral for every open position — that locked-away portion is called "used margin." Free margin is simply everything that's left over and still available to you. The way to picture it: your account has a live total value called equity, which is your cash balance plus or minus the running profit or loss on trades you currently have open. Out of that equity, some is reserved (used margin) and the rest is free. So free margin is the breathing room in your account. It's the money you could put toward opening another trade, and just as importantly, it's the cushion that absorbs losses on your existing trades before things get dangerous. Here's the key thing beginners miss: free margin moves in real time, even when you do nothing. If your open trades drift into profit, your equity rises and your free margin grows. If they drift into a loss, your equity falls and your free margin shrinks — because the unrealized loss is eating into the same pool that was acting as your buffer. Used margin usually stays fixed while a position is open, so it's the floating profit/loss that pushes free margin up and down minute to minute.

Imagine a trader opens a forex account and deposits 2,000 USD, so their balance and equity both start at 2,000 USD. They open a position that requires 400 USD of collateral. - Used Margin = 400 USD (locked while the trade is open) - Equity = 2,000 USD (no floating profit or loss yet) - Free Margin = Equity − Used Margin = 2,000 − 400 = 1,600 USD Now suppose the trade moves against them and shows a floating loss of 300 USD. Nothing else changes, but: - Equity = Balance + Floating P/L = 2,000 − 300 = 1,700 USD - Used Margin = 400 USD (unchanged while the position stays open) - Free Margin = 1,700 − 400 = 1,300 USD The 300 USD floating loss didn't touch the used margin — it came straight out of the free margin cushion. If instead the trade had shown a 250 USD floating profit, equity would rise to 2,250 USD and free margin would grow to 1,850 USD. This is why traders watch free margin: it shrinks the moment open trades go red, long before any trade is actually closed.