The free Margin in your trading account represents the amount of money you can use to trade on the forex market. Also, it is used as capital to open a new trading position. When the trader’s free Margin has been zero, the trader cannot open another trading position. Free Margin in forex is also called “Usable margin” because, as the name indicates, it refers to the amount that can be used for further trading. Forex margin is calculated by subtracting your used margin positions from your account equity, i.e. your balance plus or minus any profit or loss you have made from the open positions you hold.
Forex Free Margin Example
For example, now we have a forex trading account with a $2000 balance and a 5% CFD margin. Then we need to open a position that has a $10000 cost. At the endpoint of opening the trade, the following is true.
- Account balance=$2000
- Margin =$500 (5% of $10000)
- Free Margin= $2000-$500= $1500 (Equity – Used Margin)
- Equity= $2000
If the position value increases, offering us an unrealized $50 profit, we can discover the following things
- Equity Account Balance:- $2000
- Used Margin = $500
- Free Margin =$1550
- Equity= $2050
The equity balance and utilize Margin do not modify. Yet the forex free margin and the Equity both grow to remember the unrealized profit of the open position. It is essential to mention that If the position value drops by $50 rather than increases, the Equity and free Margin would have fallen by the same amount.
Why Margin is necessary in Trading Market?
Free margin, also known as usable margin, fights negative price fluctuations in your available trades and opens new leveraged trades. It grows with profitable positions and drops with losing positions.
How to increase Free Margin in Forex
If your open position is profitable, your Equity will grow, which means you have an additional free margin. And you can also add money to your trading account.
What is a good level of free margin in forex?
Above 100% is thought beneficial. If your trading account decreases below that level then you add your money into your deposit account.
How to calculate Margin Level
Let’s say that your Equity is 15000 and your Margin is 500, so your margin level is calculated through the following formula.
Margin level= Equity divided by margin and the result multiplied by 100
(15000/500) x 100 =300%
What occurs if my Free Margin declines to zero?
If your free margin declines zero ,You’ll receive a margin call with no margin left to protect any possible losses from open forex positions. You’ll need to recharge your account or close all your open positions.