Skip to content

TOP FOREX BROKERS REVIEW

THE INTERNET'S MOST COMPREHENSIVE LIST OF ONLINE FOREX BROKERS AND FOREX REVIEWS. 

What is Free Margin?

There are two types of Margin, “used” and “free.”

Used Margin is the cumulative amount of all the Required Margin. (All open Trades)

Free Margin= Difference between Used Margin and Equity. Usable Margin and Free Margin is synonymous.

Free Margin is of two kinds:

  • Usable Margin to open a new trade.
  • The amount of existing trade can move against the trader before a Stop Out.

Calculation of Free Margin:

Free Margin= Equity – Used Margin

With the increasing equity of presently profitable open trade, the Free Margin will also be increasing and will be decreasing while losing money and falling equity.

Situation1: No open Position

No open position is there.

So, what about free Margin?

First, calculate Equity:

Equity= Account Balance + Floating Amount (P/L)

$1000=$1000+$0

Now, let’s see the Free Margin:

Free Margin= Equity – Used Margin

$1000=$1000+$0

So, there is no Usable or Free Margin.

Situation 2: Open Long USD/JPY Trade

Trade Account Balance: $1000

Calculation of Required Margin

Condition: Long USD/JPY and about to open 1 mini lot trade (1000 units)

Needed Margin will be 4%.

He base currency: USD

And the lot needs 10,000 dollars.

So the Notional Value = $1000.

Required= Notional Value X Margin Requirement

$400= $10,000 X $0.04

Calculation of Used Margin

There is a single open Trade.

So, Free Margin= Required Margin

Calculation of Equity

Suppose, the price is in favor. The floating P/L is $0.

Equity= Account Balance + Floating Amount (P/L)

$1000=$1000+$0

Free Margin= Equity – Used Margin

$600= $1000 – $400.

So, the Equity is equal to the sum of Used and Free Margin.

1 Comment

  1. Manjita on January 26, 2020 at 12:45 AM

    Free margin is different between used margin and equity.

Leave a Comment





Scroll To Top