Financial Analyst/ Guest author, RADEX MARKETS
Lee W. is a seasoned professional trader with over 10 years of experience. Passionate about sharing valuable expertise and unique market insights, Lee W. now serves as an external and independent market analyst for RADEX MARKETS.
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Free margin is the money in your trading account that is not tied up by open positions, leaving it available to open new trades or absorb floating losses.
If you use MT4 or MT5, you will see the Free Margin figure changing in the account row as the market moves. The number is easy enough to spot; understanding what it is telling you is where things become less obvious. Is the amount high enough to place another trade? Should you worry when it starts shrinking? And does reaching zero mean the account is about to be wiped out?
Those questions matter because free margin performs two jobs at once. It represents your remaining trading capacity, but it is also the financial cushion supporting your existing positions. A trader who watches only the account balance can therefore miss a problem developing in real time. The balance may look perfectly healthy while floating losses quietly eat through equity and free margin underneath it.
This guide explains how free margin is calculated and then follows one trade from entry towards stop out, showing how the key account figures change at every stage. It also explains what actually happens when free margin reaches zero, where to find the figure in MT4 and MT5, and whether floating profit can safely be used to add another position.
Free margin is calculated by subtracting used margin from equity. It shows both how much capacity remains for opening new trades and how much floating loss the account can still absorb; reaching zero prevents new trades from being opened, but positions are not automatically closed until the margin level reaches the broker’s stop-out threshold. In MT4, the figure appears in the account row of the Terminal; in MT5, it appears in the corresponding row of the Toolbox.
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Free margin is the portion of your account equity that remains after the margin supporting your open positions has been deducted. In simple terms, it is the money that is not currently locked away by your trades. It plays two roles at once: it provides the capacity to open new positions and acts as a cushion against floating losses on positions you already hold.
Unlike your balance, free margin can change every second while a trade is open. A profitable move increases equity and usually increases free margin, while an adverse move reduces both. You do not need to open, close or adjust a position for the figure to change; ordinary market movement does the job for you.
For example, an account can still show the same balance it had when a trade was opened, even though a growing floating loss has substantially reduced its free margin. This is why the balance alone does not reveal how much room an account has left. Free margin gives the more immediate picture because it reflects what is happening to open trades in real time.
The part of account equity not reserved as margin for open positions, calculated as equity minus used margin; it is the capacity available for new trades and the cushion that absorbs floating losses.
Free margin is both the account’s cushion against floating losses and its remaining capacity to open new trades. Its value becomes much easier to understand when you see how balance, equity, used margin and margin level connect to it.
|
Term
|
Meaning
|
Moves with open trades
|
|---|---|---|
| Balance | Deposits and withdrawals plus realised trading results | No; it normally changes only when money moves in or out or a trade closes |
| Equity | Balance plus floating profit or minus floating loss | Yes; it changes as open positions gain or lose value |
| Used margin | Funds reserved to support open positions | It changes when positions are opened, closed or adjusted, and may also vary with conversion rates |
| Free margin | Equity minus used margin | Yes; it rises or falls with equity and changes when used margin changes |
| Margin level | Equity divided by used margin, multiplied by 100 | Yes; it changes as equity or used margin changes |
Free margin answers whether the account has enough available funds to open another trade. Margin level answers how close the account is to the broker’s margin-call or stop-out thresholds. They are related, but they are not interchangeable; the dedicated guide to forex margin levels explains the percentage thresholds and account-health grading in more detail.
The calculation is built from three short formulas:
Required margin = Notional position size ÷ Leverage
Equity = Balance + Floating profit or loss
Free margin = Equity − Used margin
The notional position size must be expressed in the account’s base currency before the margin calculation is completed. Your trading platform normally performs this conversion automatically, which is why the displayed margin requirement can move slightly when exchange rates change.
For example, consider a trader opening a 0.10-lot USD/CHF position in a US-dollar account:
The trader began with a $1,000 balance, but the $75 floating loss reduced equity to $925. After the $333.33 required margin was deducted, $591.67 remained available to support the position or meet the margin requirement for another trade. With no positions open, used margin is zero, so free margin equals equity.
Free margin changes with every movement in the floating profit or loss on an open trade. The following table continues the same $1,000 account and 0.10-lot EUR/USD position. It assumes used margin remains fixed at $366.67 and uses a 50% stop-out level, so the changing relationship is easy to see.
|
Snapshot
|
Equity
|
Used margin
|
Free margin
|
Margin level
|
What happens
|
|---|---|---|---|---|---|
| Position opened | $1,000.00 | $366.67 | $633.33 | 272.73% | The trade is open and the remaining equity is available as free margin |
| Small floating loss | $925.00 | $366.67 | $558.33 | 252.27% | The position remains open, but both free margin and margin level have fallen |
| Deep floating loss | $500.00 | $366.67 | $133.33 | 136.36% | The account is still above 100%, although its remaining cushion is thin |
| Free margin at zero | $366.67 | $366.67 | $0.00 | 100.00% | No capacity remains for another trade; the position is not yet closed |
| Stop-out level | $183.33 | $366.67 | −$183.34 | 50.00% | The threshold is reached; closure follows if equity slips below it under the assumed rule |
On a 0.10-lot EUR/USD position, each pip is worth approximately $1. The $75 loss therefore represents a 75-pip move against the trade, the $500 loss represents 500 pips, free margin reaches zero after roughly 633 pips, and the assumed 50% stop out arrives at about 817 pips. This example ignores spread, commission, swap charges and any recalculation of required margin so that the mechanics remain visible.
What counts as a safe margin level is not universal. Above 100%, the account has positive free margin; at 100%, free margin is zero and the account has reached the practical margin-call line. Many traders use 300% or more as a personal buffer target, but that is a risk-management guideline rather than a guarantee of safety. In fact, this example begins at only 272.73%, showing that being allowed to open a leveraged position is not the same as leaving yourself generous breathing room.
The dedicated margin-level guide explains how to interpret the percentages in more detail. The separate guide to margin calls and stop outs covers warnings, broker procedures and forced closures; for UK-regulated retail accounts, the FCA’s margin close-out rule requires firms to act when net equity falls below 50% of the required margin.
When free margin reaches zero, you cannot open a new position or add exposure, and a pending order that would require additional margin will not execute. It does not mean the account is immediately wiped out. Positions are closed only when the margin level reaches the broker’s stop-out threshold, not simply because free margin has reached zero.
For UK-regulated retail accounts trading covered leveraged products, the framework is more specific. Under FCA COBS 22.5, a firm must close open positions as soon as market conditions allow if net equity falls below 50% of the margin required to maintain them. The same rules provide negative balance protection, limiting the retail client’s liability to the funds held in that trading account.
This means that if an extreme price gap carries a protected retail account below zero before positions can be closed, the client should not be left owing the broker the shortfall. The protection applies to eligible retail accounts and covered products; clients classified as professional may not receive the same safeguard. This is why traders should confirm both the close-out percentage and account classification in their broker’s terms rather than assuming every margin account works identically.
Both MetaTrader platforms display free margin in the account-information row of the Trade tab, and there is nothing extra to download or install. The main difference is the name of the desktop window: MT4 calls it the Terminal, while MT5 calls it the Toolbox.
|
Field on screen
|
MT4 (Terminal)
|
MT5 (Toolbox)
|
|---|---|---|
| Balance | Balance | Balance |
| Equity | Equity | Equity |
| Locked funds | Margin | Margin |
| Available funds | Free Margin | Free Margin |
| Health percentage | Margin Level | Margin Level |
On the mobile app, open the Trade screen and look in the account-information area at the top. MetaTrader’s mobile documentation lists Equity, Margin, Free Margin and Margin Level there, followed by the open positions and pending orders. The precise layout can vary slightly by operating system, screen size and app version, but the field names remain recognisable.
MetaQuotes confirms the desktop shortcuts and Trade-tab locations in its official MT4 Terminal guide, MT5 platform guide and MT5 mobile trading guide.
In MT5 hedging mode, opening an equal position in the opposite direction can sometimes leave used margin lower rather than higher. Brokers may apply a reduced hedged-margin amount or calculate margin from the larger side of the long and short exposure; if the margin released is greater than the new spread and trading costs, free margin can rise. MetaTrader’s symbol documentation confirms that the method is chosen by the broker, so the effect is not automatic on every account.
That increase is not free money or a new safety cushion. An equal hedge largely freezes the existing net profit or loss instead of repairing it, while spreads, commissions and overnight charges may continue to accumulate on both positions. When one side is closed, its result becomes realised and the remaining position is exposed to price movement again, so traders should check the broker’s hedged-margin rules before relying on this technique.
There are three practical ways to increase free margin that a trader can directly control, and each one carries a cost or trade-off. A favourable market move may also lift free margin, of course, but hoping that price eventually comes back is not much of a risk-management plan.
Adding money increases the account balance and equity, so free margin rises immediately while used margin remains unchanged. The cost is straightforward: more capital from outside the account is now exposed, while the size and underlying risk of the open positions have not been reduced.
Closing part of the exposure releases some of the margin reserved to support it, which can increase free margin without requiring a new deposit. If that portion is losing, however, its floating loss becomes realised when it is closed. The account has less exposure afterwards, but the loss has not disappeared merely because its label changed.
Trading smaller is the preventative approach. A smaller position requires less margin, leaving more equity free to absorb ordinary market movement and making the account less likely to become stretched in the first place. As the earlier calculation showed, notional position size and leverage determine the initial margin requirement, so reducing the lot size directly reduces the amount locked away.
Read more：What Is Leverage in Forex and How Much Should You Use?
Floating profit increases equity in real time and therefore increases free margin, which means unrealised profit genuinely can be used as margin for a new position. If an open trade adds $300 to equity, the platform may treat part of that $300 as available capacity even though the original position has not been closed.
The danger is that the trader is treating money that has not yet been banked as permanent capital. If the market reverses, the floating profit can disappear while the added position begins losing at the same time. That combination accelerates the fall in both equity and free margin, turning an apparently healthy winning trade into the familiar pyramiding route towards an overleveraged account.
A sensible criterion is to treat floating profit as a reward on the screen rather than capital available for immediate reuse. Add to exposure only with funds or profits that have already been realised and only when the enlarged position still fits the account’s original risk limit. The platform may permit more; that does not mean the risk plan should.
Read more：10 Forex risk management tips every trader should know
Free margin is the money in a trading account that is not pledged against open positions and remains available to use. As the five-term table shows, it serves the dual purpose of funding new trades and absorbing floating losses.
Margin is the money reserved to support open positions, while free margin is the money that remains available. Free margin is calculated by subtracting used margin from equity, as shown in the five-term comparison table.
Free margin becomes negative when floating losses reduce equity below used margin. New trades and pending orders that require additional margin will not execute, and the account is moving closer to its stop-out threshold, as explained in the three-stage zero-margin section.
You can generally withdraw funds that are not locked as margin, subject to the broker’s withdrawal rules and displayed withdrawable balance. However, withdrawing money reduces equity and removes part of the cushion supporting open positions, bringing a stop out closer if the account is already carrying a floating loss.
A margin account can be highly risky because leverage allows a trader to control exposure larger than the capital deposited, magnifying losses as well as gains. Free margin is the remaining cushion inside that account, so monitoring it is a basic part of controlling risk; the dedicated margin-trading guide explains the full mechanics.
A margin level above 100% means the account still has positive free margin, while many traders use 300% or more as a personal buffer target. This is a guideline rather than a guarantee, and the dedicated margin-level guide explains the grading and broker thresholds in more detail.
Free margin is the account’s breathing room: the formula is only equity minus used margin, but its movement reveals how much flexibility the account really has. Check that the figure leaves enough room before opening a trade, watch how quickly it shrinks while the position is open, and remember that exposure can still be reduced before free margin reaches zero.
As a practical next step, open one small position in a demo account and watch Balance, Equity, Margin, Free Margin and Margin Level move across the account row. Seeing the relationship update in real time usually makes the mechanics clearer than another page of theory ever could.
Lee W. is a seasoned professional trader with over 10 years of experience. Passionate about sharing valuable expertise and unique market insights, Lee W. now serves as an external and independent market analyst for RADEX MARKETS.
Reviewed by RADEX MARKETS
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Trading derivatives and leveraged products carries a high level of risk, including the risk of losing substantially more than your initial investment.
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