Free Margin

Free Margin, in the context of forex trading and other financial markets, refers to the available funds in a trader’s account that can be used for opening new positions or maintaining existing ones.

In forex trading, the total account balance is utilized to meet the margin requirements for open positions. Margin is the minimum account balance required to open or hold a position. The margin required to open a position varies depending on factors such as the volatility of the traded instrument, leverage ratio, and position size.

Free Margin is the difference between the current balance and the margin used for open positions. In other words, Free Margin = Current Balance – Used Margin. It represents the funds that are not tied up in positions and are available for new trades or to support existing positions. Additionally, Free Margin can be used to absorb potential losses or to maintain the account in the event of a margin call.

Margin Level is another important concept related to Free Margin. It represents the ratio of the equity (current balance plus or minus any unrealized profits or losses) to the total margin. Margin Level is calculated as (Equity / Total Margin) * 100. It is an indicator of the account’s risk and shows how much margin is available relative to the open positions.

Maintaining a sufficient Free Margin and monitoring the Margin Level is crucial for risk management in trading. If the Margin Level falls below a certain threshold, a margin call occurs, and the trader may be required to deposit additional funds into the account. Failure to meet the margin call may result in the closure of positions and potential losses.

Having Free Margin allows traders to explore new opportunities and potentially earn profits. It also provides flexibility for risk management, such as adjusting position sizes or adding new trades. Regularly monitoring Free Margin and Margin Level helps traders stay aware of their account’s risk exposure and take appropriate actions to protect their capital.

In summary, Free Margin refers to the available funds in a trader’s account that can be used for opening new positions or maintaining existing ones. It is calculated as the difference between the current balance and the margin used for open positions. Margin Level, on the other hand, indicates the risk level of the account by comparing the equity to the total margin. Monitoring Free Margin and Margin Level is essential for effective risk management in trading.