What Is Free Margin?
Learn what free margin means, how it's calculated, and why it's important for absorbing losses and opening new positions.
- 7 min read
- For beginners
- Educational
- Lección 3 de 7
Free margin is the counterpart to used margin, covered in the previous lesson. This guide explains what free margin represents and why it's an important figure to monitor.
This is general educational content explaining a standard account metric.
What Is Free Margin?
Free margin (sometimes called available or usable margin) refers to the portion of your account equity that is not currently committed as used margin. It represents funds available either to open new positions or to absorb potential losses on existing open positions.
How Free Margin Is Calculated
Free margin is generally calculated as: Equity − Used Margin. Since equity reflects your account balance adjusted for the current unrealized profit or loss of open positions (as covered in the earlier lesson on account balance in position sizing), free margin fluctuates in real time as open positions gain or lose value.
Why Free Margin Matters
Free margin serves as a buffer against further adverse price movement on open positions. As losses accumulate, equity decreases, which directly reduces free margin. If free margin is depleted, this connects directly to the margin call and stop-out concepts covered in the following lessons.
Free Margin Changes with Market Movement
Because free margin is tied to equity, it increases when open positions move favourably and decreases when they move unfavourably, even without any new positions being opened or closed. This dynamic, real-time nature is why free margin should be monitored on an ongoing basis, not just when opening a new position.
Summary
Free margin, calculated as Equity minus Used Margin, represents the funds available to open new positions or absorb losses on existing ones. Because it's tied to equity, free margin fluctuates continuously with market movement, making it an important figure to monitor on an ongoing basis rather than only when opening new trades.
Frequently Asked Questions
It's the portion of account equity not currently committed as used margin, available for new positions or to absorb losses on existing ones.
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