Direct answer
A worked example of free margin is a step-by-step calculation where you start with your account equity, subtract the margin already tied up by open positions, and get the remaining buffer. Free margin is usually stated as the amount you can lose while still meeting margin requirements, but the exact meaning depends on how a platform defines equity and used margin.
For independent verification, you can reproduce the same arithmetic using the numbers shown in your account (equity, used margin, and the platform’s free margin figure).
Mechanism or definition
Start with three terms:
- Equity: the account’s total value after including unrealised profit/loss (often: balance plus floating P/L, minus certain fees or adjustments).
- Used margin: the portion of equity reserved as margin for currently open positions.
- Free margin: the remaining portion, commonly expressed as:
- Free Margin = Equity − Used Margin
A critical assumption in any example is that your platform uses this relationship and that it displays the same underlying inputs you use in your calculation.
Evidence or example
Here is one worked numerical scenario with every assumption stated.
Assumptions (chosen for clarity):
- Your platform uses Free Margin = Equity − Used Margin.
- Your open position(s) currently require Used Margin = 300 (currency units are not important).
- Your account equity shown by the platform is Equity = 1,000.
- No other adjustments (such as special margin add-ons, commissions treated separately, or non-standard valuation rules) affect the displayed free margin.
Step-by-step calculation:
- Free Margin = Equity − Used Margin
- Free Margin = 1,000 − 300
- Free Margin = 700
Now change a single variable (unrealised P/L), keeping the rest constant:
- Suppose the market moves and your floating result decreases equity from 1,000 to 900.
- Keep Used Margin = 300 (same open positions, same leverage/margin requirement model).
- New Free Margin = 900 − 300 = 600.
Interpretation (without predicting outcomes): The buffer shrank because equity fell, even though used margin stayed the same. This is why free margin is tightly linked to unrealised profit/loss, not only to leverage.
Limitations and risks
Material limitations to verify:
- Different definitions by provider: some platforms compute equity or used margin differently (for example, how they treat commissions, swaps, or margin add-ons). This can make the arithmetic look right while still not match the displayed figure.
- Failure mode near margin thresholds: free margin is not a guarantee against margin calls or forced position closure. If losses accelerate faster than your account can absorb them, the protection window can be brief.
- Execution and costs: spreads, commissions, and execution slippage affect realised/unrealised outcomes and therefore equity. Even if you ignore real-time prices here, real conditions can change the inputs quickly.
Because the exact mechanics vary across platforms and jurisdictions, the only fully reliable method is to reproduce the calculation using the platform’s own displayed values.
Verification or next question
To verify the concept yourself:
- Take a snapshot of your account’s Equity and Used Margin while you have open positions.
- Compute Equity − Used Margin.
- Compare your computed value with the platform’s Free Margin number.
- Repeat after a small change in unrealised P/L to confirm that free margin responds through the equity term.
If the numbers do not align, the next question to investigate is which platform-specific rule changes the mapping between equity, used margin, and free margin.