What Is Margin in Forex?
Margin is the amount associated with maintaining leveraged trading positions.
It is not simply another name for your trade size.
For example, controlling a market position worth considerably more than the cash balance in your account is possible because leveraged trading requires only a portion of the exposure to be supported as margin.
MetaTrader describes Margin as the amount required to cover open positions and, depending on the setup, pending orders.
What Is Free Margin?
Free Margin is the amount remaining after margin requirements are accounted for.
A simplified formula is:
Free Margin = Equity − Used Margin
MetaTrader documents the same basic relationship, while noting that exact calculations can depend on the trading conditions configured for the account.
Example
Suppose:
Balance = $10,000
Floating P/L = $500 profit
Equity = $10,500
Margin = $2,000
Free Margin would approximately equal:
$10,500 − $2,000 = $8,500
Now imagine the trades move into a $2,000 floating loss.
Equity becomes:
$8,000
Free Margin becomes approximately:
$8,000 − $2,000 = $6,000
This demonstrates why free margin changes even when your account balance has not changed.
Balance Is Not Free Margin
This is another common misunderstanding.
Your Balance normally reflects realized results.
Your Equity incorporates the effect of open positions.
Your Margin relates to capital committed against leveraged positions.
Your Free Margin indicates remaining capacity after that margin commitment.
This is why looking only at account balance can give traders an incomplete picture.
Why Is Free Margin Important?
Free margin affects a trader's ability to:
- open additional positions;
- absorb floating losses;
- maintain existing leveraged exposure.
Very low free margin can indicate that an account is becoming heavily committed.
That doesn't predict whether a trade will win or lose. It simply tells you something important about account capacity and exposure.
Conclusion
Think of it this way:
Balance = realized account value
Equity = current account value including open P/L
Margin = funds associated with maintaining leveraged positions
Free Margin = remaining capacity
Margin Level = equity relative to used margin
Understanding these five numbers can dramatically improve how a trader reads an MT5 account.
