What is Free Margin in Forex Trading?

Free margin in forex trading refers to the amount of funds in a trader's account that is available for opening new positions or sustaining existing ones. It is the difference between the account's equity and the margin used for open positions. In other words, it is the amount of funds that can be used for new trades without affecting existing positions.

Free margin is an essential aspect of risk management in forex trading. It is important to maintain enough free margin in the account to avoid margin calls, which occur when the account's equity falls below the required margin level. When this happens, the broker may close out the trader's positions to prevent further losses.

Here is an example to better understand free margin:

Suppose a trader has an account balance of $10,000 and has opened a position with a margin requirement of $1,000. The free margin in the account would be $9,000 ($10,000 account balance - $1,000 used margin).

If the trader wishes to open a new position with a margin requirement of $500, the free margin in the account would decrease to $8,500 ($9,000 - $500 used margin).

Therefore, it is important for traders to monitor their free margin levels and adjust their position sizes accordingly to manage their risk effectively.