What Is Free Margin in Trading? Definition, Formula, and Examples

Definition:
Free margin is the amount of equity in a trading account that is not tied up in margin for current open positions and is available to open new trades.

Explanation:
When you trade with leverage, part of your equity is locked as used margin to support open trades. The rest is called free margin.

• Equity = Balance ± Floating P/L
• Free Margin = Equity – Used Margin

If free margin becomes zero or negative, the trader can’t open new trades and risks hitting a margin call.

🧮 Plain-Text Formula (Web-Safe)

Free Margin = Equity – Used Margin

📈 Example (Forex)

• Account Balance = $1,000
• Open Trade Margin = $200
• Current Floating Profit = +$50
• Equity = $1,050
• Free Margin = 1,050 – 200 = $850

This means the trader still has $850 available to open new trades.

🌍 Why Free Margin Matters

• Determines how many additional trades you can open
• Acts as a cushion to absorb floating losses
• Protects traders from margin calls and stop outs
• Essential for risk and position management

Related Terms: Margin, Equity, Margin Call, Stop Out, Leverage

Category:
Trading / Risk & Margin Management

✅ FastPip Tip:

Always keep enough free margin in your account. Over-leveraging reduces free margin quickly and increases the risk of margin calls.

📣 Related Resources from FastPip

✅ Trade with safe margin levels on our Copy Trading Platform
✅ Get Forex Signals that balance risk and free margin
✅ Read our Blog for margin management tips and calculators