Welcome to our guide on Harnessing the Power of Free Margin in Forex Trading. This article aims to provide a clear and simple explanation of this key principle for beginners in the world of foreign exchange trading. We will go over what free margin is, how it is calculated, and why it is important in forex trading. So, let’s dive in!
What is Free Margin?
Free margin is the amount of money available in a trading account that is not currently tied up in open positions. In simpler terms, it is the difference between your account balance and the margin used for open trades. It represents the funds that are available for new trades or to cover any potential losses.
Calculating Free Margin
The formula to calculate free margin is:
Free Margin = Equity – Margin Used
Where:
- Equity is the total value of your trading account, including unrealized profits and losses.
- Margin Used is the amount of money currently being held by your broker to maintain open positions.
Importance of Free Margin
Free margin is a crucial concept in forex trading as it determines the amount of capital available for trading. It is essential to monitor your free margin regularly to avoid margin calls, which occur when your account does not have enough funds to cover potential losses. By managing your free margin effectively, you can prevent your trades from being automatically closed by your broker due to insufficient funds.
FAQs
Q: How does free margin differ from available margin?
A: Free margin refers to the funds available for new trades or to cover losses, while available margin is the amount of money you can use to open new positions.
Q: Can I withdraw my free margin from my trading account?
A: Yes, you can withdraw funds from your free margin, as it represents the amount available for trading purposes.
Q: How can I increase my free margin?
A: You can increase your free margin by either closing winning trades or depositing additional funds into your trading account.
References
Are you ready to trade? Explore our Strategies here and start trading with us!