Free margin is the money in your forex trading account that’s available to open new positions. It’s calculated with a simple formula: free margin equals your equity minus your used margin. Think of it as your remaining buying power after accounting for the trades you already have open.
How Free Margin Is Calculated
The core formula is straightforward:
Free margin = Equity − Used margin
Equity is your account balance plus or minus any unrealized profit or loss on your open trades. Used margin is the portion of your account that’s currently locked up as collateral for those open positions. So expanding the formula one more step:
Free margin = (Balance + floating profit or − floating loss) − Used margin
If you have no open trades, your equity equals your balance, your used margin is zero, and your free margin is your entire account balance. The moment you open a position, some of that balance gets set aside as margin, and your free margin shrinks accordingly.
A Simple Example
Say you deposit $10,000 into your forex account. With no trades open, your free margin is $10,000. Now you open a position on EUR/USD that requires $3,000 in margin. Immediately, your used margin is $3,000 and your free margin drops to $7,000.
If the trade moves in your favor and you’re sitting on $500 in unrealized profit, your equity rises to $10,500. Your used margin is still $3,000, so your free margin is now $7,500. That extra $500 in floating profit expanded your available buying power.
Now imagine the trade goes against you and you’re down $1,000. Your equity falls to $9,000, used margin stays at $3,000, and your free margin shrinks to $6,000. The key takeaway: free margin is not a fixed number. It moves in real time with every tick of the market.
Why Free Margin Matters
Free margin serves two critical purposes in your trading account. First, it determines whether you can open additional positions. If your free margin is zero or negative, your broker won’t let you place a new trade because there’s no collateral left to support it. Second, free margin acts as a buffer to absorb losses on your existing trades. If a position moves against you, your free margin is what keeps the account solvent before your broker steps in.
Monitoring your free margin tells you, at a glance, how much room you have. A large free margin relative to your account size means you have flexibility. A thin free margin means you’re stretched, and even a small adverse move could put you in trouble.
How Leverage Affects Free Margin
Leverage directly controls how much margin gets locked up when you open a trade, which in turn determines how much free margin you retain. For major currency pairs like EUR/USD or USD/JPY, margin requirements typically range from 2% to 5% of the position’s notional value. A 2% requirement gives you 50:1 leverage, meaning you can control a $100,000 position with just $2,000 in margin. A 3% requirement provides roughly 33:1 leverage.
Higher leverage means less margin is required per trade, which leaves more free margin in your account. That sounds like an advantage, and it can be, because it gives you flexibility to open additional positions or weather short-term drawdowns. But the flip side is significant: higher leverage also means losses eat into your equity faster relative to the margin held. A position that uses only $2,000 in margin can still generate thousands of dollars in losses, draining your free margin rapidly.
Consider a trader controlling a $110,000 EUR/USD position with about $3,300 in margin (a 3% requirement). If the pair drops roughly 100 pips, the position loses about $1,000. That $1,000 comes straight out of equity, which means free margin drops by $1,000 too. Another 65 pips down and the losses have consumed roughly half the original margin deposit. The math moves fast with leveraged positions.
Margin Calls and Stop-Outs
When your free margin gets dangerously low, your broker intervenes through two mechanisms: a margin call and a stop-out.
Brokers track something called your margin level, which is your equity divided by your used margin, expressed as a percentage. When this percentage drops to a threshold set by your broker, you receive a margin call. This is a warning that your account is running low on cushion. A common trigger is 100%, meaning your equity has fallen to exactly the amount of margin being used, leaving zero free margin.
If the market keeps moving against you and your margin level drops to the stop-out level, the broker automatically closes one or more of your positions to prevent further losses. A typical stop-out level is 50%, though some brokers set it at 20% or other levels. These thresholds are broker-specific, not universal standards, so check your broker’s trading conditions page to know exactly where these lines are drawn for your account.
The important connection to free margin: by the time you receive a margin call, your free margin is essentially gone. And by the time a stop-out triggers, your account has lost a substantial portion of its equity. Watching your free margin as a leading indicator helps you act before those forced liquidations happen.
Reading Free Margin on Your Platform
Most trading platforms display free margin in real time, typically in the account summary or terminal window alongside your balance, equity, used margin, and margin level. On MetaTrader 4 and MetaTrader 5, you’ll find it labeled “Free Margin” in the Trade tab at the bottom of the screen. It updates automatically as prices change.
If the free margin figure starts declining quickly while your balance hasn’t changed, that tells you your open positions are moving into loss territory. If it’s increasing, your trades are profitable and you’re gaining additional capacity. Keeping an eye on this number, rather than just your balance, gives you a more accurate picture of your account’s real-time health.
Managing Your Free Margin
The simplest way to maintain healthy free margin is to avoid using too much of your account on any single trade or group of correlated trades. If your used margin is 80% of your equity, even a modest losing streak can wipe out your free margin and trigger forced closures.
Depositing additional funds increases your equity and therefore your free margin. Closing losing positions frees up the margin that was reserved for those trades. Using stop-loss orders limits how much a single trade can drain your equity before it’s automatically closed. Reducing position sizes or using lower leverage both result in less margin being consumed per trade, preserving more free margin as a buffer.
A practical rule of thumb: if your free margin is a small fraction of your total equity, you’re overleveraged regardless of what the individual trades look like. The number gives you an honest, real-time measure of how much risk you’re carrying.