Free margin
Family III · Risk
Not to be confused with used margin, margin, margin call, margin level.
Free margin is the difference between an account's equity and its used margin. It measures the funds not tied up as collateral for existing positions, and therefore available for new trades or to withstand adverse price moves. Because margin requirements vary by broker and instrument, the same equity can produce different free margin figures across accounts.
Calculation
Free margin is calculated as:
- Free margin = Equity − Used margin
Equity is the account balance plus or minus unrealised profit or loss on open positions. Used margin is the sum of margin requirements for those positions. If equity falls below used margin, free margin becomes negative, indicating that the account cannot support its current positions without additional funds.
Worked example
Relationship to margin level
Free margin is distinct from margin level, which is the ratio of equity to used margin expressed as a percentage. A positive free margin does not guarantee a comfortable margin level; for example, an account with $10,500 equity and $2,000 used margin has a margin level of 525%, while an account with $10,500 equity and $10,000 used margin has a margin level of 105% and free margin of only $500. Brokers set margin call and stop-out thresholds at different levels, so the point at which free margin becomes critical varies.
Often confused with
- used margin
- Used margin is the portion of equity locked as collateral for open positions, whereas free margin is what remains; the visible sign is that used margin is subtracted from equity to produce free margin.
- margin
- Margin is the required deposit to open and maintain a position, while free margin is the surplus equity beyond that requirement; the visible sign is that margin is a requirement and free margin is a residual.
- margin call
- A margin call is a broker's demand for additional funds when equity falls below a required threshold, whereas free margin is a continuous measure of available funds; the visible sign is that a margin call is an event or notification, not a numerical balance.
- margin level
- Margin level is equity divided by used margin expressed as a percentage, while free margin is equity minus used margin in currency terms; the visible sign is that margin level is a ratio and free margin is an amount.