What free margin is

The subtraction 

Nothing is transferred when the platform prints free margin. No money moves between fields, no cash is released, and there is no second pot anywhere in the account. There is one amount, equity, and the platform describes it in two parts: the part committed as collateral against the open positions, and the part that is not committed. Free margin is the name of the second part. It is equity minus used margin, recalculated on every tick, and stated in the account's own currency.

Because the field is derived rather than recorded, it holds no information of its own. Every fact about free margin is a fact about one of the two figures it is made from, which is why the module reaches it here rather than earlier. A subtraction of two numbers means nothing until both numbers do. The field appears on the account panel of both platforms YAL runs, MetaTrader 5, printed in the same group as the two figures it comes from, and each platform's own documentation is the reference for its exact label.

Why it moves when nothing has been traded 

Of the two figures in the subtraction, one is conventionally still and one is never still. The requirement held against a position is set at the moment the position is opened and stays at that figure until the position is closed or its size is changed. Equity is recalculated on every tick, because the unrealised result of everything open forms part of it. Subtracting a still figure from a moving one produces a moving figure, and it moves by exactly as much as the moving one does.

That last clause is the whole mechanism, and it is worth stating precisely. An unrealised loss of a given amount reduces equity by that amount, leaves used margin where it was, and therefore reduces free margin by the same amount. A favourable move of the same distance raises equity by that amount and raises free margin by that amount. One for one, in both directions, with no dampening anywhere in the arithmetic. This is why the field can fall sharply on a day when no order was placed at all: nothing was traded, and the valuation of what was already open did the work.

Reading the two closing rows together shows what the field is for. Free margin is the running answer to one question about the account: how far the current valuation could fall before the account is worth no more than the collateral already committed against what is open.

How far a position can move before it reaches zero 

Because free margin falls one for one with an adverse valuation, the distance it can absorb is a division rather than an estimate. Free margin, divided by the money value of one increment of price movement across everything open, gives the number of increments that would take it to zero. Converting that count back into price gives the level at which it arrives. Nothing in the calculation is predictive. It restates a figure already on the panel in the units the price is quoted in, and it says nothing about whether the price will travel that distance, in that direction, or at all.

Two features of that result matter more than the figure itself. The distance shortens as the size of the open position grows, because a larger position produces a larger money value per increment while the free margin figure above it is unchanged. And the distance shortens as free margin is consumed, whether it is consumed by an adverse move, by cash being withdrawn, or by the requirement on something else being opened. The same division, run at two different moments, does not return the same answer.

What zero means, and what lies past it 

Free margin reaching zero is not a boundary the arithmetic declines to cross. It is the point at which equity and used margin are equal, and equity carries on falling past it if the valuation carries on falling. The field then prints a negative figure, which states that the account is currently worth less than the collateral committed against its open positions.

What happens at and past that point is not decided by this field. Platforms test a percentage rather than a subtraction: the ratio of equity to used margin, which the next lesson covers, and which a notification and an automatic closing of positions are defined against. Those thresholds sit at their own levels, set by the firm and stated in the account's terms, and they need not coincide with the moment free margin crosses zero. Free margin is the more legible of the two figures, because it is stated in money rather than in percent. It is not the one being enforced.

It follows that a loss is not bounded by the margin posted against a position. A close out is an action the platform performs when a threshold is breached, not a limit on how far a price can travel, and the price can move between the moment the threshold is breached and the moment the position is actually closed.

Free margin and what else the account can hold 

The requirement on any further position is taken from free margin, which makes the field the arithmetic ceiling on what else the account can hold: an instruction whose requirement exceeds free margin is rejected by the platform for insufficient margin. The ceiling is a constraint rather than an allowance, and reading it as spare money mistakes what the subtraction has done. The amount was never idle. It is the part of the equity currently absorbing the movement of the positions that are already open.

Opening something else moves an amount out of that absorbing role into the committed one, and it does so at both ends of the division at once. Free margin falls by the requirement on the new position, so there is less left to absorb a move. The set of positions whose movement consumes it is larger, so each increment of price movement consumes more. The distance calculated in the previous section therefore shortens twice over, which is the arithmetic behind the common observation that free margin disappears faster than the size of the new position seemed to suggest.

Withdrawals meet the same field, because the cash that can be taken out is measured against free margin rather than against balance. An account whose balance is largely committed as used margin can show a balance considerably larger than the amount available to withdraw, and the difference between the two is the collateral the open positions are holding.

Where practitioners disagree 

Two arguments about this field are unsettled. The first is whether free margin or margin level better describes how much room an account has. Free margin is stated in money, which makes it directly comparable to the size of a move, and the tradition that prefers it argues that a percentage abstracts away the one comparison worth making. The counter argument is exact: the platform does not test free margin at all, so an account can print a comfortable free margin figure while the percentage that is tested sits close to its threshold. Both observations hold, which is why the two fields are printed beside each other rather than one replacing the other.

The second concerns the assumption that used margin stands still. It stands still under most arrangements, but not all. Some requirements are recalculated against the current value of a position rather than its value at opening, and some are tiered so that the percentage held rises with position size. Where either applies, free margin moves for two reasons at the same time, and the clean one for one relationship with equity described above becomes an approximation rather than an identity. Which arrangement applies is a property of the instrument's own specification rather than a general rule, and the specification is where it is stated.