In plain English
What Free margin means
A common platform formula is free margin = equity − margin. Equity normally includes the balance plus or minus unrealized profit and loss, while used margin covers existing positions. Some systems also reserve funds for orders, commissions, or other account features, so the amount available to place a new order may not exactly match a basic calculation.
Why it matters
Free margin is a practical buffer. Falling free margin means unrealized losses, higher requirements, or additional trades are consuming the account’s capacity. It can reach zero before an automatic close-out occurs, because close-out is usually linked to a separate threshold such as margin level or account equity.
Example
An account has a $4,000 balance, open losses of $700, and used margin of $1,200. Simplifying by assuming no credit, fees, or reserves, equity is $3,300 and free margin is $2,100 ($3,300 − $1,200). If losses grow by another $2,100, free margin reaches zero.
Quick answers
Common questions
Can free margin be negative?+
It can be negative on some platforms when equity falls below used margin, although broker systems may begin closing positions before or around that point. The platform’s margin policy determines the exact handling.
Does positive free margin mean an account cannot be closed out?+
No. Close-out rules may use margin level, total account equity, or an account-specific threshold. Positive free margin is useful context, but it is not a universal protection against liquidation.
Sources