Free Margin

Free margin is the portion of a trading account's total value that remains available and is not locked as collateral against currently open positions. It is calculated by subtracting the used margin of open positions from the account's total equity.

Free margin is an essential indicator of a trader's capacity to enter new positions, as this amount must be sufficient to cover the margin requirements for any additional trades they wish to open.

It also plays a vital role in absorbing temporary adverse fluctuations in open positions; as floating losses on current trades increase, free margin automatically decreases and may even reach zero or below in severe loss scenarios.

Professional traders continuously monitor free margin as part of their risk management, because a significant decline serves as an early warning signal preceding a margin call or the forced liquidation of positions if the market continues to move against expectations.

A common mistake is failing to monitor free margin while opening multiple trades simultaneously, which can tie up most of the account balance as used margin, leaving very little room to absorb unexpected price volatility.