What is “Free Margin”?
In forex trading, margin falls into two main categories: Used Margin and Free Margin.
- Used Margin is the total amount of margin currently being used to keep your open trades active.
- Free Margin is the amount of your account equity that’s still available—it’s not tied up in any existing trades.
In simple terms:
Free Margin = Equity – Used Margin
Free Margin is also called:
- Usable Margin
- Available Margin
- Available to Trade
- Usable Maintenance Margin
It represents two key things:
- The funds available to open new positions.
- The buffer zone—how much your trades can move against you before you get a Margin Call or face a Stop Out.
(Don’t worry—we’ll explain Margin Call and Stop Out later. Just know they’re things you want to avoid, like unexpected bills or a bad Wi-Fi signal.)
How to Calculate Free Margin
Step-by-step formula:
Free Margin = Equity – Used Margin
Your Free Margin changes in real time depending on the performance of your open positions:
- If your trades are profitable → Equity increases → Free Margin increases
- If your trades are losing → Equity decreases → Free Margin shrinks
Example 1: No Open Positions
You’ve just deposited $1,000 and haven’t opened any trades.
Step 1: Calculate Equity
Equity = Balance + Floating P/L
$1,000 = $1,000 + $0
Since no trades are open, your Equity is the same as your Balance.
Step 2: Calculate Free Margin
Free Margin = Equity – Used Margin
$1,000 = $1,000 – $0
No margin is being used, so Free Margin = $1,000
Example 2: One Open Trade – Long USD/JPY
You still have a $1,000 account balance. Now let’s open a trade:
- You go long 1 mini lot of USD/JPY (10,000 units)
- Margin Requirement is 4%
Step 1: Calculate Required Margin
Notional Value = $10,000
Required Margin = $10,000 × 4% = $400
Step 2: Calculate Used Margin
Only one position is open, so:
Used Margin = $400
Step 3: Calculate Equity
Let’s say your trade is at breakeven (no floating profit or loss):
Equity = Balance + Floating P/L
$1,000 = $1,000 + $0
Step 4: Calculate Free Margin
Free Margin = Equity – Used Margin
$600 = $1,000 – $400
So you now have $600 in Free Margin that you can use to open new trades or absorb potential losses.
Bonus Insight: Equity = Used Margin + Free Margin
You can also think of Equity as being made up of:
- What’s already being used (Used Margin)
- What’s still available (Free Margin)
Equity = Used Margin + Free Margin
Recap
Here’s what you learned:
- Free Margin is the portion of your account not locked up in open positions.
- It’s the amount available for opening new trades or for absorbing floating losses.
- When Free Margin hits zero or goes negative, you can’t open new trades and risk triggering a Margin Call or Stop Out.
- Profitable trades increase Free Margin; losing trades reduce it.
Previously covered topics:
- Margin Trading – Why leverage matters and how margin works
- Balance – The static value of your account, excluding open trades
- Unrealized & Realized P/L – Understanding gains and losses
- Required Margin – The margin reserved for each open trade
- Used Margin – The total of all Required Margin
- Equity – Your account’s live value: Balance + Floating P/L