what is free margin in forex & why does it matter?

@vickyjoseph - 8 months ago - Forex Education

Its easy to confuse free margin with margin, so please could somebody explain what is free margin and what causes it to get depleted during a trade?

@segun_33 - 8 months ago

Free Margin is the money that is left in your trading account after you open a trade and the broker has locked up the margin required for the trade.

The moment you open a buy or sell position, your forex broker will always withhold the margin so that you cannot withdraw it during an active trade. However, the remainder of the money left in your trading account is called the "free margin" because you are free to withdraw it even during an active trade.

The more losses you sustain during a trade, the lower your free margin falls and the more profits you make, the higher your free margin rises.

The moment your free margin is finished, your margin level would have fallen to 100% and at that point you are at risk of a margin call if you sustain more losses.

When your free margin is finished the broker begins to use your margin collateral deposit to offset any losses and sooner or later the broker will close all your trades so your account does not go into negative balance.

@paul_petit - 6 months ago

there are two margins in trading, the first one is the margin for opening a trade and you cannot withdraw it one the trade is active.

The second one is free margin and you can withdraw it even when the trade is active. But beware, withdrawing your free margin reduces your margin level which is like a buffer to keep your trades alive in case of losses.

@george_kramer - 1 month ago

It is from your free margin that you get funds to set your stop loss. Free margin is also what keeps you afloat when your trade is in a loss. if your free margin is too low, a small loss will send you out of the market.