Meaning of free margin in forex
In forex trading, free margin means the portion of your account equity that is not currently used as margin for open positions. In practical terms, it is the amount of “room” you have to support additional trades, given the margin required by your broker and your current account balance.
A clear way to think about it:
- Equity reflects the current value of your account, including floating profit or loss from open trades.
- Used margin is the portion of equity that is already tied up to keep your existing positions open.
- Free margin is what is left: free margin = equity − used margin.
How free margin works (mechanics)
Free margin does not stay constant. It updates when either of these changes:
- Floating profit/loss changes as forex prices move relative to your open positions. That changes equity.
- Used margin changes when you open or close positions, or when margin requirements change.
Margin requirements depend on factors such as instrument, leverage, and the broker’s margin model (for example, how it treats hedging or position netting). Because different brokers may calculate margin slightly differently, the exact number shown as “free margin” can vary across platforms even when your account equity is the same.
In general, if your open trades move against you, equity can drop while used margin stays in place—so free margin falls. If trades move in your favor, equity can rise—so free margin increases.
Example check (conceptual)
Assume your account equity is 10,000 and your used margin for open positions is 3,000. Your free margin would be 7,000. If price moves so floating losses reduce equity to 8,500 while used margin remains 3,000, free margin becomes 5,500. The key point is that free margin follows equity changes caused by open positions.
Relevant limitations and risks
Free margin is an indicator of capacity, not a guarantee of outcomes. Several limitations matter:
- Broker-specific calculation: the way used margin is calculated (and how equity is marked-to-market) can differ by broker and account type.
- Price-speed and gap risk: fast market moves can change floating profit/loss quickly, which can reduce free margin sooner than you expect.
- Margin protection actions: when free margin becomes very low, brokers commonly apply risk controls such as restricting new trades or closing positions. The exact trigger levels and procedures vary, so you cannot infer them without the broker’s account terms.
- No real-time certainty: free margin is always a snapshot based on current pricing. If quotes or spreads move, the displayed free margin can change.
If you want independent verification, compare how your platform defines equity, used margin, and free margin in its account or risk pages, and test it with a controlled paper/account-free simulation if available.