Simply, **free margin** is the money in a trading account available for trading. To calculate free margin, you must subtract the margin of your open positions from your equity (i.e. your balance plus or minus any profit/loss from open positions).

Free margin = (balance + profit or balance - loss) - margin

Let's look at an example.

Joe has a balance of **$10,000**. He opens a trade for **2 lots (2 x 100,000 = 200,000)** of EURUSD at an exchange rate of 1.20000. His account's leverage is 1:50. The total trade position is **200,000 x 1.20000 = $240,000**. The required margin for this particular position is 240,000/50 = $4,800. The free margin at this stage is $10,000 - $4,800 = **$5,200** as there is no profit or loss.

Now, let's say that the price of EURUSD drops to** 1.19050**, which is a loss of** 0.00950 pips (1.20000 - 1.19050)**, equivalent to $240,000 x 0.00950 = **$2,280** (loss).

Using the formula to calculate free margin, taking into consideration the loss as a result of the change in price, we see the free margin amount has decreased.

Free margin = ($10,000 - $2,280) - $4,800

Free margin = $7,720 - $4,800 = $2,920

### Why is my free margin important?

Your free margin – also called ‘usable margin’ - is necessary to withstand any negative price fluctuations in your open trades, and to open new leveraged trades. Free margin increases with profitable positions and decreases with losing positions.

### What is a safe level of margin for my Forex trading account?

In Forex trading, any margin level above 100% is considered healthy. It’s calculated as a ratio of your equity to the margin you’re using for open positions.

Margin level = (equity/used margin) x 100

Let's say your equity is $8,000 and you've used $2,000 of your margin, your margin level is calculated as:

Margin level = ($8,000 / $2,000) x 100

Margin level = $4 x 100

Margin level = 400%

### What if my margin level runs low without me noticing?

When markets move against your open positions, your margin level falls. If it ever falls close to a fixed percentage as agreed with your broker, you’ll be notified with a margin call.

For example:

Let's say your balance is $5,000, but you've taken $3,800 in losses, and you've used $2,000 of your margin. Your margin level will be:

Margin level = ($5,000 - $3,800) / 2,000 x 100

Margin level = 60%

If you have a margin call set at 40% and your current margin level is 60%, you'll receive a margin call if your margin level drops another 20%. At that point, you'll need to respond to the margin call by either depositing more funds to your trading account or closing positions to free up more margin.

### What happens if my free margin drops to zero?

With no margin left to cover any potential losses from open positions, you’ll receive a margin call. This is when you'll need to either deposit funds to top up your account, close open positions, or both.

### How can I increase my free margin?

If your open positions prove to be profitable, your equity will increase, which means that you’ll have more free margin. Of course, you can also make a deposit to your account and increase the overall balance.

### How much margin do I need to trade Forex?

The margin is the money you put up in order to use leverage, so the two are interlinked. If, for example, the margin is 10% the leverage is 10:1. And if it’s 20%, the leverage is 5:1. Take a look at our guide to margin requirements.