Free Margin is the amount available in a trader’s account that has not yet been used to open any position. In other words, it is the “free” portion of the account’s Equity that the trader can rely on to open new positions or absorb fluctuations in currently open positions without being exposed to a Margin Call.

How Is Free Margin Calculated?

Free Margin is calculated using the following formula:

Free Margin = Equity - Used Margin

The higher the Equity or the lower the Used Margin in open positions, the higher the Free Margin. The opposite is also true: any decline in Equity caused by market movements directly reduces Free Margin.

Why Is Free Margin Important?

Free Margin gives the trader a clear view of their ability to open additional positions or absorb market fluctuations in current positions. When Free Margin approaches zero, the probability increases that the Margin Level will reach the threshold that triggers a Margin Call. Continued decline may lead to the automatic closure of positions through a Stop Out.

Illustrative Example

If the account Equity is $1,000 and the Used Margin for currently open positions is $300, the Free Margin will be:

1,000 - 300 = $700

This means that the trader has $700 available to open new positions or absorb market movements without affecting the current position.