Free margin is the portion of your account equity that is not currently locked up as collateral for open trades. It is calculated as Equity minus Used Margin — and unlike your account balance, it moves in real time with every pip your open positions gain or lose. Free margin is the single most important number for managing multiple positions simultaneously, because when it reaches zero, your broker blocks new trades, and when it goes negative, forced liquidation begins.
Key Takeaways
- Free Margin equals Equity minus Used Margin — not Balance minus Used Margin. Using balance in the formula is a common and dangerous mistake.
- Free margin fluctuates in real time with floating P&L. A 100-pip adverse move on 1 standard EURUSD lot reduces free margin by $1,000 before you close a single trade.
- At most major brokers (OANDA, Pepperstone, IC Markets), a margin call triggers at 100% margin level and forced stop out begins at 50% — often with no prior warning.
How Free Margin Works
Free margin depends on three moving parts: your balance, your open floating P&L, and the margin your broker has locked as collateral.
Equity = Balance + Floating P&L
Used Margin = Collateral locked by the broker for open positions
Free Margin = Equity − Used Margin
Margin Level = (Equity ÷ Used Margin) × 100
When you have no open trades, free margin equals your equity, which equals your balance. The moment you open a position, Used Margin is reserved and free margin drops immediately — before the trade moves a single pip. From that point forward, every tick against you shrinks free margin further. Every tick in your favor expands it.
Overnight swap charges work the same way: they are deducted from equity at rollover, reducing free margin by that amount without any trade being opened or closed.
Quick Reference
| Aspect | Detail |
|---|---|
| Formula | Free Margin = Equity − Used Margin |
| Margin Call Trigger | 100% margin level (most major brokers) |
| Stop Out Level | 50% margin level — largest losing position liquidated first |
| Used Margin (1 lot EURUSD, 1:100) | ~$1,000–$1,100 depending on current price |
| Free Margin at Zero | No new positions can be opened |
Practical Example
A trader has a $3,000 account with 1:100 leverage. They open 1 standard lot of EURUSD at 1.0850, which requires $1,085 in used margin.
- Starting free margin: $3,000 − $1,085 = $1,915
- Margin level: ($3,000 ÷ $1,085) × 100 = 276%
The trade moves 150 pips against them, a $1,500 floating loss.
- Equity: $3,000 − $1,500 = $1,500
- Free margin: $1,500 − $1,085 = $415
- Margin level: ($1,500 ÷ $1,085) × 100 = 138%
At this point the trader is not yet at stop out, but opening a second 1-lot position would require another $1,085 in used margin — more than the $415 free margin available. They cannot add to or hedge the position.
At 200 pips drawdown, equity falls to $1,000. Margin level = 92%, below the 100% margin call threshold. The broker issues a margin call. If the trade continues to $1,542 in losses (equity = $1,458), margin level hits 50% and the stop out triggers. The position is forcibly closed at a realized loss — while the balance shows the account is nearly wiped.
Free margin is the equity in your trading account that isn’t locked up as collateral. It equals your equity minus your used margin, and it changes in real time as your open trades move. When it hits zero, you can’t open new positions.
Common Mistakes
- Confusing balance with equity. Traders who watch their balance feel safe while a losing trade silently erodes their equity and free margin. Balance only updates on closed trades. Free margin responds to every tick.
- Opening multiple positions without checking free margin. Each new trade consumes used margin, reducing free margin before the new trade has moved at all. Stacking positions during a losing streak can collapse free margin faster than the individual trades suggest.
- Ignoring the gap between margin call and stop out. A margin call at 100% does not mean you can react in time. During high-volatility news events, price can gap through both the 100% margin call level and the 50% stop out level in seconds.
- Forgetting swap on overnight holds. A multi-day EURUSD position accruing negative swap of $8–$12 per night shrinks equity — and therefore free margin — continuously, even in a flat market.
How PipJournal Tracks Free Margin
PipJournal logs used margin and free margin alongside each trade, so traders can review their margin utilization across a session after the fact. This makes it easy to identify sessions where leverage was dangerously high or where free margin fell close to margin call thresholds — turning near-misses into concrete data points for improving position sizing discipline.
