Free Margin

What is free margin?

Free margin is the portion of a trading account’s equity that is not locked up as collateral for existing open positions. It’s the cash cushion available to open new trades, or to absorb further floating losses on positions already open, before the account runs into trouble.

The formula is straightforward:

Free Margin = Equity − Used Margin

Where equity is the account balance adjusted for any floating (unrealized) profit or loss on open positions, and used margin is the total collateral currently tied up across all open positions.

A worked example

Say a trader has an account balance of $5,000 and one open position that currently requires $1,000 of margin to maintain.

• If the position is exactly breakeven, equity = $5,000, so free margin = $5,000 − $1,000 = $4,000.
• If the position has moved $300 in the trader’s favor, equity rises to $5,300, so free margin becomes $5,300 − $1,000 = $4,300.
• If instead the position is down $2,500, equity falls to $2,500, so free margin becomes $2,500 − $1,000 = $1,500.

Notice that free margin moves with every tick of an open position’s floating profit or loss, not just with new deposits or withdrawals — it is a live, constantly updating number on the trading platform.

Why free margin matters

Free margin is the practical answer to “how much more can I trade, or how much more can I lose, right now?” A shrinking free-margin figure is an early warning sign: as losses eat into equity, free margin falls, the account’s margin level drops, and eventually a margin call or stop-out can follow. Monitoring free margin — not just account balance — is a core habit of disciplined risk management, especially when running several positions at once.

Quick recap

• Free margin = equity − used margin.
• It represents the buffer available to open new trades or absorb further losses.
• It changes constantly with floating profit/loss on open positions, not just with deposits.
• A falling free margin is a leading indicator of rising account risk.