Free margin in gold trading

Free margin is what remains of your equity after the margin for open positions is set aside. It is calculated as equity minus used margin, where equity is the balance plus or minus floating profit and loss. Free margin is the account’s buffer: it falls as open trades lose and rises as they gain, and it determines whether a new position can be opened.

How it applies to gold trading

Suppose an account has a $5,000 balance and holds 0.50 lots of gold at $4,000 with 100:1 leverage. Used margin is $2,000, so free margin starts at $3,000. If gold falls $20, the floating loss is $20 × 100 × 0.50 = $1,000; equity becomes $4,000 and free margin $2,000. A further $40 fall would leave free margin at zero and the margin level at 100%, where many platforms issue a margin call.

Because gold can move $40 in a session, free margin can disappear quickly on an oversized position. Watching it is a crude but honest way to see how much room a position has.

A common mistake

Using free margin as a guide to how big the next trade can be. Free margin shows what the platform will allow, which is far more than a sensible risk-based size. Position size should come from the planned risk, not from the available margin.

See also: Margin, Equity, Margin level, Stop-out.

Frequently asked questions