Free Margin is an essential concept in forex trading that determines how much capital you have available to open new trades or sustain existing ones.
1. What is Free Margin?
✔ Free Margin is the amount of Equity NOT tied up in open trades.
✔ It represents how much capital is available to open new trades or absorb losses from existing trades.
✔ If your Free Margin drops to zero, you won’t be able to open new trades and may face a Margin Call or Stop Out.
💡 Think of Free Margin as “extra cash” that’s available for trading.
2. How to Calculate Free Margin
✔ Formula:
📌 Free Margin = Equity – Used Margin
💡 If you have no open trades, Free Margin = Equity = Balance.
3. Examples of Free Margin Calculation
Example 1: No Open Trades (Free Margin = Equity = Balance)
🔹 You deposit: $1,000
🔹 No open positions
📌 Calculation:
✔ Equity = $1,000 + $0 → $1,000
✔ Used Margin = $0 (No trades open)
✔ Free Margin = $1,000 – $0 → $1,000
📢 Since there are no open trades, all margin is available as Free Margin.
Example 2: Open Trade with No Floating Profit or Loss
🔹 You deposit: $1,000
🔹 You open 1 mini lot (10,000 units) of USD/JPY
🔹 Margin Requirement: 4%
🔹 Used Margin Calculation:
✔ Required Margin = $10,000 x 4% = $400
📌 Calculation:
✔ Equity = $1,000 + $0 → $1,000
✔ Used Margin = $400
✔ Free Margin = $1,000 – $400 → $600
📢 You still have $600 of Free Margin available to open new trades.
Example 3: Open Trade with Floating Loss
🔹 Same trade as above, but now your trade is at a -$100 floating loss.
📌 Calculation:
✔ Equity = $1,000 – $100 → $900
✔ Used Margin = $400
✔ Free Margin = $900 – $400 → $500
📢 Your Free Margin has decreased due to the floating loss.
Example 4: Open Trade with Floating Profit
🔹 Same trade, but now your trade has a +$150 floating profit.
📌 Calculation:
✔ Equity = $1,000 + $150 → $1,150
✔ Used Margin = $400
✔ Free Margin = $1,150 – $400 → $750
📢 Your Free Margin increases as your Equity grows with floating profits.
4. Why is Free Margin Important?
✔ Determines how many new trades you can open.
✔ Helps measure risk exposure—if Free Margin is low, your account is at risk of a Margin Call.
✔ If Free Margin reaches zero, your broker may automatically close your trades to prevent further losses (Stop Out).
5. Key Takeaways
✔ Free Margin = Equity – Used Margin
✔ It is the amount of Equity available to open new trades or sustain losses.
✔ Floating profits increase Free Margin, while floating losses decrease Free Margin.
✔ If Free Margin = 0, you can’t open new trades and risk a Margin Call.
Understanding Free Margin is crucial for effective risk management and ensuring your trading account stays healthy! 🚀📉
