Free margin
Also called Usable margin, Available margin, Margin free
Free margin is the part of your account equity that is not locked up as margin for open trades. It equals equity minus used margin, and it is the money available to open new positions and to absorb floating losses.
Free margin decides two things: whether your next order is accepted, and how much loss your open trades can take before your broker steps in. It changes with every tick, because floating profit and loss feed straight into it.
The free margin formula
Free margin = Equity − Used margin
Equity = Balance + Floating profit or loss
If equity is $470 and your broker is holding $110, you have $360 free.
Equity is your balance adjusted for the running result of your open trades. Used margin is the deposit your broker holds back while those trades stay open. With no open trades, used margin is zero, so free margin, equity and balance are the same number.
A related figure is margin level: equity ÷ used margin × 100. When free margin reaches zero, margin level is exactly 100%. Free margin is an amount of money; margin level is a percentage built from the same two inputs. The stop-out level is the margin level percentage at which the broker starts closing your trades automatically, set by each broker.
Free margin worked out for $500, $5,000 and $50,000 accounts
The figures in this section are an illustrative example: EUR/USD at 1.1000 and leverage of 1:100, so the margin is 1% of the position value. Spread and commission are left out.
Start with the $500 account and a 0.10 lot buy, which is 10,000 units.
- Position value: 10,000 × 1.10 = $11,000.
- Used margin: $11,000 ÷ 100 = $110.
- Price drops 30 pips. At $1 per pip, the floating loss is $30.
- Equity: $500 − $30 = $470.
- Free margin: $470 − $110 = $360.
The bars below show the same account in three states. In this example used margin stays at $110 once the trade is open. With most brokers it stays roughly fixed, but some recalculate it at the current price, which would make it about $109.70 after the 30-pip drop to 1.0970. The whole floating loss comes out of free margin.
The $5,000 account buys 0.50 lot: used margin is $550, a 20-pip rise at $5 per pip adds $100, and free margin is $5,100 − $550 = $4,550.
The $50,000 account buys 3 lots: used margin is $3,300, a 50-pip fall at $30 per pip costs $1,500, and free margin is $48,500 − $3,300 = $45,200.
Free margin, margin level and pip cushion side by side
Margin level for the $500 account is $470 ÷ $110 × 100 = 427%. The last column, pip cushion, is free margin divided by pip value, explained in the next section.
| Balance | Trade | Used margin | Floating result | Equity | Free margin | Margin level | Pip cushion |
|---|---|---|---|---|---|---|---|
| $500 | 0.10 lot | $110 | −$30 | $470 | $360 | 427% | 360 pips |
| $5,000 | 0.50 lot | $550 | +$100 | $5,100 | $4,550 | 927% | 910 pips |
| $50,000 | 3 lots | $3,300 | −$1,500 | $48,500 | $45,200 | 1,470% | about 1,507 pips |
Turning free margin into a pip cushion
Free margin in dollars is hard to judge. Convert it to pips and it becomes a distance you can compare with your stop loss.
Pip cushion = Free margin ÷ Total pip value of open trades
The pip cushion ends at a margin level of 100%, where you can no longer open trades. Your broker closes trades later, at its stop-out level, so the distance to compare with your stop loss is this one:
Pips to stop-out = (Equity − Stop-out % × Used margin) ÷ Pip value
For the $500 account, take an illustrative stop-out level of 50%: $470 − (50% × $110) = $470 − $55 = $415, and $415 ÷ $1 = 415 pips. Each broker sets its own stop-out level, so look yours up before you use the formula.
Use the pips to stop-out as a decision rule before you add a trade:
- If the pips to stop-out after the new trade would be smaller than your stop loss distance, cut the lot size. Price would reach the broker's forced close before your stop, so you would be relying on the stop-out instead of your own exit.
- All open trades draw on the same free margin. Add the pip values of trades that move together. Trades that offset each other reduce your net pip value.
- A wider spread shortens the distance to stop-out, so leave room beyond your stop loss.
Here is the before and after on the $500 account. A second 0.10 lot takes used margin to $220, free margin to $470 − $220 = $250, and pip value to $2. The cushion falls from 360 pips to $250 ÷ $2 = 125 pips.
Mistakes that drain free margin
- Reading free margin as spare cash to spend. It is your loss buffer. Every new position shrinks it twice: more used margin now, and a bigger pip value working against you later.
- Adding trades on floating profit. Unrealized profit lifts free margin, so the platform accepts a larger order. If price reverses, the profit disappears and the bigger position stays.
- Watching balance instead of equity. Balance only changes when a trade closes. Free margin follows equity, so it can be falling while your balance looks untouched.
- Assuming margin requirements never change. Brokers can raise them around major news or weekends. Used margin then jumps and free margin drops with no price move at all.
What you can change to raise free margin
Four things move free margin: lot size, account leverage, deposits or withdrawals, and closing trades. Smaller lots and higher leverage both lower used margin. A deposit or closing a losing trade lifts free margin.
Your trading platform calculates it live and shows it in the account summary, usually on one line with balance, equity, margin and margin level. Many order windows also show the margin a new order needs before you confirm, which is the moment to run the pip cushion check.
FAQ
Can free margin go negative?
Yes. If floating losses push equity below used margin, free margin turns negative and margin level falls under 100%. You cannot open new trades, and your broker may start closing positions once its stop-out level is reached.
Can I withdraw my free margin?
Brokers generally limit withdrawals to free margin while trades are open, and their rules differ. Any amount you take out lowers equity, so your pip cushion shrinks by the same dollars.
Does a pending order reduce free margin?
With most brokers a pending order holds no margin until it is filled. Check the cushion as if it were already open, because it can trigger while you are away from the screen.