Free margin

What free margin means

Free margin is the part of your account equity that is not currently locked up as margin for open positions. It tells you how much money is still available to open new trades or to absorb losses on the ones you already hold. Platforms such as MetaTrader show it on the account panel next to balance, equity, used margin and margin level.

To understand it, three related terms help. Balance is the cash in the account from deposits and closed trades. Equity is balance plus or minus the floating profit or loss of open positions. Used margin is the deposit the broker sets aside to keep your leveraged positions open. Free margin is what is left after you subtract the used margin from equity.

It is used by anyone trading leveraged products, mainly forex and CFDs, but also futures and margin accounts for shares. It works as a real-time gauge of room to move, much like a fuel gauge.

How it works

The formula in plain words: Free margin = equity - used margin.

Because equity changes with every price tick, free margin changes too. When open trades gain, equity rises and free margin grows. When they lose, equity falls and free margin shrinks. Opening a new position increases used margin and so reduces free margin immediately, even before the price moves.

A new order is only accepted if free margin covers the margin it requires. If the free margin is too small, the platform rejects the order with a message like "not enough money". Pending orders usually do not reserve margin until they trigger, although this depends on the platform and broker.

When free margin reaches zero, the account is at 100% margin level in the usual definition: equity equals used margin. Brokers then typically issue a margin call and, if equity keeps falling to the stop-out level, start closing positions automatically. The exact levels are set by the broker and the regulator.

A worked example

These numbers are illustrative. A trader has a 5,000 EUR account and uses 30:1 leverage.

1. Balance: 5,000 EUR.
2. Open position: 1 standard lot of EUR/USD, worth 100,000 EUR in the base currency.
3. Used margin: 100,000 / 30 = 3,333.33 EUR.
4. The position is currently losing 300 EUR, so equity = 5,000 - 300 = 4,700 EUR.
5. Free margin: 4,700 - 3,333.33 = 1,366.67 EUR.
6. Margin level: equity / used margin x 100 = 4,700 / 3,333.33 x 100 = 141%.

The trader now wants another 0.5 lot, which needs 50,000 / 30 = 1,666.67 EUR of margin. That is more than the free margin of 1,366.67 EUR, so the order is rejected. The largest extra size is about 1,366.67 x 30 = 41,000 EUR of exposure, or 0.41 lots. Opening that full size would leave almost no room: free margin would be close to zero, and any small adverse move would put the account near a margin call.

Why it matters

Free margin is the buffer between a normal drawdown and a forced closure. A trader who watches only profit and loss may not notice how little room is left. Using nearly all free margin makes the account fragile because small price swings, a spread widening or a gap can trigger a margin call.

Differences between brokers and account types matter. Leverage choices, margin rates by instrument, margin call and stop-out levels, and whether the platform counts hedged positions in margin all change the numbers. Retail accounts in regulated regions are usually subject to lower leverage and a close-out rule at a set share of the margin, which makes the buffer more important to watch.

How to use it in practice

1. Check the account panel before each trade and know your free margin.
2. Calculate the margin needed for a planned trade before placing it.
3. Keep a large part of free margin unused. Many traders aim to use only a modest portion of their capital as margin.
4. Size trades by risk, using stop-loss distance, rather than by how much the platform allows.
5. Watch margin level as well as free margin; they tell the same story from different angles.
6. Look up the broker's margin call and stop-out levels in the trading conditions.
7. Allow extra room for events such as news, weekend gaps and spread widening.

Common mistakes and misconceptions

• Treating free margin as spendable profit. It is a buffer, not extra money to commit.
• Opening the largest position the platform will accept. Maximum size and sensible size are far apart.
• Forgetting that floating losses reduce free margin even before a trade is closed.
• Mixing up free margin and balance. Balance does not include open-trade results.
• Assuming the margin requirement is the same for every instrument. It varies.
• Assuming a stop-loss alone guarantees limited loss. Gaps and slippage can still go beyond it.

Risks and limitations

Free margin is a snapshot and can fall quickly in fast markets. Leveraged products can lose more than expected, and depending on the account and region the loss can exceed the deposit unless negative balance protection applies. Calculations differ by broker and platform, and displayed values depend on the broker's prices. It describes your account state, not the quality of a trade.

How Brokeli looks at it

Free margin sits at the centre of margin rules, so we record how each broker defines margin requirements, margin call and stop-out levels and which leverage tiers apply by country and client type. These facts come from published research snapshots. They help readers understand how much buffer an account type really offers.