Two meanings in one number
Free margin does two jobs that are frequently confused. The first is operational: how much more I can open. The second is defensive, and it matters more: how much I can lose on paper before margin level reaches the intervention threshold.
Read it only the first way and you see "room available" and fill it with new positions, spending the very buffer that was protecting you. This is the most common path to a margin call.
Where this term sits in the account chain
The chain has a fixed order, and each term is derived from the one before it:
Balance → (add the profit or loss of open positions) → equity → (subtract the margin held) → free margin. The ratio of equity to held margin is the margin level, the single number a broker watches to decide a margin call and then a stop-out.
Learn the definitions separately and you know what each word means without knowing the price at which your account closes. Every page in this family runs the same account through the same numbers to reach exactly that price.
The formula
Free margin = equity − margin held
A worked example
The reference account used across this family: a $1,000 balance, 1:500 leverage, and a 0.10 lot buy on gold at 2,400.00 — 10 ounces, $24,000 notional.
Margin held = 24,000 ÷ 500 = $48. Every $1 of gold price is $10 of profit or loss on 10 ounces.
At 2,400 free margin is 1,000 − 48 = $952. If gold falls to 2,350, equity becomes 500 and free margin becomes 500 − 48 = $452. Note that the subtracted figure stays at 48; what moved was equity.
Where the same account ends up: margin call at 2,304.80, stop-out at 2,302.40. The position survives a $97.60 fall — about 4% — before the broker intervenes. Run your own numbers in the margin calculator.
Common mistakes with this term
- Using all of free margin to open new positions, erasing the buffer that absorbs floating losses.
- Confusing it with balance; free margin moves with every tick while balance sits still.
- Assuming all free margin is withdrawable, when withdrawal depends on broker terms and open positions.