Forex Free Margin, Equity and Balance: Reading Your Account

Your account shows a $2,000 balance, you try to open one more trade, and the platform refuses. Nothing is wrong with your money — you have simply run out of forex free margin, which is a different number from your balance and the one that actually governs what you can do.

Every forex platform shows you four numbers at once: balance, equity, used margin and free margin, plus a margin level percentage. Most beginners watch only the balance and get ambushed by the other three. This guide walks a single real account through a single trade so you can see exactly how each number moves, when a margin call fires, and when the broker closes your position for you. If you want the structured version of this, our beginner-level forex trading course builds the whole risk picture step by step.

What's the difference between balance, equity and free margin?

Free margin is the money in your account that is not currently tied up backing an open trade — it is what you can use to open new positions and what absorbs losses on the ones you already hold. Balance is only your settled cash from closed trades and deposits. Equity is your balance adjusted, second by second, for the profit or loss on positions that are still open.

So the three answer three different questions. Balance asks "what did I have when nothing was running?" Equity asks "what is the account really worth right now, this instant?" Free margin asks "how much of that can I still deploy or lose before the broker steps in?"

When you have no open positions, all three line up: balance equals equity, used margin is zero, and free margin equals the whole balance. The moment you open a trade, they split apart — and the gap between them is the entire subject of this article.

How free margin is calculated

The arithmetic is simpler than the jargon. There are only three formulas, and they chain together.

Equity = Balance + floating profit or loss. Floating (or unrealised) P&L is the gain or loss on every open position at the current market price. A $40 floating loss on a $2,000 balance makes your equity $1,960. Close the trade and that floating number becomes real — it folds back into the balance.

Used margin is the slice of your equity the broker locks as a good-faith deposit for your open positions. It is set by the leverage cap on the instrument. Under the limits the UK's Financial Conduct Authority adopted in Policy Statement PS19/18 — and the matching ESMA measures across Europe — retail traders get a maximum of 30:1 on major currency pairs. Thirty-to-one means you post 1/30th, or 3.33%, of the position's value as margin. A $30,000 position therefore ties up $1,000. Switch to a non-major pair or gold and the cap drops to 20:1 — the same $30,000 position would lock $1,500, not $1,000. In other words, the instrument you choose changes your free margin before the market has moved a single pip.

Free Margin = Equity − Used Margin. That is the headline formula. Whatever equity is left after the broker's deposit is set aside is free to open new trades or to soak up further losses.

One more number sits on top: the margin level, a percentage the platform calculates as (Equity ÷ Used Margin) × 100. It is the single ratio brokers watch to decide whether you are still safe or about to be shut down. A high percentage means plenty of cushion; a falling one means trouble.

One account, one trade: watch the numbers move

Numbers in isolation never stick. So here is one account — a $2,000 balance opening a single $30,000 position on a major pair — walked from the moment before the trade to the moment the broker forces it closed. Used margin is $1,000 throughout (3.33% of $30,000). Everything else moves as the floating loss grows.

Source: figures computed from the standard margin formulas; 100% margin-call and 50% stop-out are common illustrative broker levels (Babypips education series, 2025) and the 30:1 retail cap follows FCA PS19/18, 2019.

What this table is telling you: used margin never changes once the trade is open — it is a fixed deposit. What collapses is equity, and because free margin is equity minus that fixed deposit, free margin collapses faster in percentage terms. By the time your floating loss reaches $1,000, your free margin is zero: you cannot open anything new, and you are at the margin-call line. Keep losing and the broker takes over. This is the exact process behind a forex margin call and why accounts get stopped out — the margin level, not the balance, pulls the trigger.

What is a good margin level percentage?

A "good" margin level is simply one that sits comfortably above your broker's two danger lines: the margin call level and the stop-out level. Both are set by the broker, not by any regulator, so the exact figures live in your account terms — but the conventions are consistent across the retail industry.

Source: Babypips margin-call and stop-out lessons, 2025. Levels are broker-set and vary; stop-outs commonly fall in the 20%–50% range for retail accounts.

The margin call level is the warning. Many brokers set it at a margin level of 100% — the point where your equity has fallen to exactly equal your used margin. At 100% you typically cannot open new trades, and you may get a notification to add funds or cut exposure.

The stop-out level is the eviction. It is lower — commonly around 50%, and roughly 20% to 50% across retail accounts — and when your margin level touches it, the platform automatically starts closing your positions, worst-losing one first, until the margin level climbs back above the line. You do not get a say. If the line between the deposit you post and the exposure you control is still fuzzy, read margin vs leverage in forex before you size your next trade.

The practical takeaway: a margin level of 500% or more means you are barely using your account's capacity and have deep room to be wrong. Drift toward 150% and you are one bad session from a call. Treat 100% not as a cliff edge you visit but as a number you never want to see. Professional desks rarely let any single trade's used margin consume more than a small slice of equity, precisely so that no one position can drag the whole account toward that line.

Why is your free margin lower than your balance?

This is the question that sends beginners to support chat, and the answer is always one of two things — usually both at once.

First, used margin is holding part of your balance hostage. The instant you opened a position, the broker fenced off its deposit. That money still belongs to you, but it is not free until you close the trade. So free margin starts below balance by exactly the used-margin amount. Look again at the table: the moment the trade opened, your balance still read $2,000, but your free margin was already $1,000 — the used margin alone, before a single pip had moved against you.

Second, floating losses are eating your equity. If your open trade is down, equity has already dropped below balance, and free margin — which is built from equity — drops with it. This is why the equity-versus-balance gap matters so much: balance is a flattering, out-of-date number, while equity is the honest one. A trader who manages to his balance is steering by a rear-view mirror.

The fix is not more deposits; it is smaller positions. Every dollar of used margin you commit is a dollar of free margin you surrender, and free margin is your shock absorber. The relationship between position size, leverage and how fast losses compound is laid out in how leverage lets 100 pips cost you 50%.

Mistakes that quietly drain your free margin

None of these show up as a single dramatic loss. They erode your cushion in the background until a normal market move finishes the job.

• Judging risk by balance, not equity. Your balance can look healthy while your equity — and therefore your real buying power — is already gutted by open losses.
• Stacking correlated positions. Three "different" trades that are really one bet lock up three lots of used margin and move against you together, draining free margin three times as fast.
• Maxing leverage because you can. Using the full 30:1 on every trade minimises used margin per position but leaves almost no equity buffer, so a small adverse move snaps you to the stop-out line.
• Ignoring the overnight swap. Financing charged on positions held past rollover is a floating cost that nudges equity — and free margin — lower every night you stay in.
• Adding to a loser to "average down". This increases used margin and deepens the floating loss at the same moment, the fastest legitimate way to meet a stop-out.

The common thread: free margin is a resource you spend, not a number that just reports. Trade as though you are managing it directly, because you are.

Frequently asked questions

Trading involves substantial risk of loss and is not suitable for every investor. This article is educational content, not investment advice.