What is Free Margin in Forex?
Free margin in forex is commonly confused with margin.
If you are unfamiliar with what margin is and would like to know, feel free to read my post on margin here.
Free margin in forex, sometimes referred to as ‘Usable Margin’, is the money in a forex account that is available to trade with.
Free margin in forex is more commonly defined as the difference between Used Margin and Equity.
Although it is a very basic concept, free margin in forex is for one reason or another often misunderstood.
Free margin is not only the amount of money you have available to open new positions, but is also the amount of money existing positions are able to move against you before a margin call/stop out is received.
In this post I will simply tell you how you can calculate free margin amounts in forex and give you an example.
If you would like some more clarifying on what free margin is, here is a quick video courtesy of the ‘FXTM‘ channel on Youtube that explains it in easily understood terms.
Calculate Free Margin in Forex
Here is the basic formula for calculating free margin:
Equity – Used Margin = Free Margin
Simple enough, right?
If you aren’t familiar with used margin, hop over to my post here.
Profitable open positions basically mean your equity is increasing, therefore you have more free margin available.
Losing open positions, or positions that are working against your favor, means your equity is decreasing, therefore you will have less free margin available to you.
Free Margin in Forex Example
To calculate your free margin level, you must know your equity amount.
Once you have your equity, it is easy to figure out your free margin.
For this example, let’s pretend you have $2,000 in your equity account.
Let’s say you hope to open a mini lot position of USD/JPY.
The margin requirement is, let’s say, 6%.
So, the required margin is $600.
Following the formula:
2,000 – 600 = 1,400
There you go.
Your free margin in this example would be $1,400.
Learn to Trade Forex
The amount of free margin you have available in your forex account widely depends on how long you’ve been trading and your skill level.
The longer you have been actively trading forex, then it is likely that after a few years you should start to grow a sizable equity account, assuming you know how to trade and are bringing in profits every single day.
If you are reading this post about free margin because you are a beginner to the world of forex trading, it is crucial you do not simply dump money into an account and start trading currency.
You will almost certainly lose a large amount of however much money you started trading with.
It is necessary to put in the time and teach yourself the basics of the forex markets and how you can consistently profit off of the volatile changes of currency prices.
The sad truth of forex trading is that most people fail, and that is just reality.
The only way to ensure you do not waste money in the markets is to get educated.
If you are a forex beginner and are ready to learn how you can make actual money trading forex everyday, please do yourself a favor and read my post here about a course that I recommend for anyone who wants to be one of the successful forex traders.
I wish you luck on your path to financial freedom with forex trading! I must say, it feels great to be able to wake up and make money as you please, with no boss telling you what to do.
If you are a beginner and want some free help on how to trade, make sure to grab our Free Intro to Forex Trading PDF. Look at the sidebar to the left of this post to see how you can get your copy sent straight to your email.