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What is Free Margin? — Important data in Forex trading

A comprehensive analysis of the calculation methods and operational principles of free margin, helping you to flexibly manage funds in Forex trading, control risks, and enhance trading capabilities!

What is Free Margin? 

Free Margin is an indicator that reflects the available funds in your account in foreign exchange trading. It represents the funds remaining for opening new trades beyond the margin required to maintain current open positions.

How Free Margin Works: 

Free Margin is the difference between your account equity and Used Margin.
  • Account equity is your account balance plus floating profit and loss.
  • Used Margin is the funds locked to maintain all open trades.
Therefore, Free Margin represents the funds currently available for opening new positions and can also be seen as a buffer of funds.

Formula for Calculating Free Margin: 

Free Margin = Account Equity - Used Margin 

For example, if your account equity is $2,000 and Used Margin is $1,000, then your Free Margin is: 

Free Margin = 2,000 - 1,000 = $1,000 

This means you have $1,000 of available funds to open new trades.

Impact of Free Margin: 

  • Opening Capacity: 

    The more Free Margin you have, the more trades you can open. If Free Margin becomes zero, you cannot open new positions.

  • Margin Call Risk: 

    If the market moves against you, leading to increased floating losses, Free Margin will decrease, which may result in a Margin Call notification, requiring you to add funds or close some trades.

Example: 

Assuming you have $2,000 in your account and have opened an open trade that uses $500 of margin. If that trade has a floating loss of $100, your Free Margin calculation is as follows: 

Free Margin = Account Equity - Used Margin 

Account Equity = 2,000 - 100 = $1,900 

Free Margin = 1,900 - 500 = $1,400 

Therefore, your Free Margin is $1,400, which is still sufficient to open new trades.

Summary: 

Free Margin is a key indicator in foreign exchange trading, representing the funds available for opening new positions while maintaining open positions. It is crucial for risk control and fund management, as once Free Margin drops to zero, you will no longer be able to make new trades. Understanding how Free Margin works can help you manage your funds effectively and avoid unnecessary risks.
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