What Are Margin, Equity and Free Margin? A Guide to Key Account Figures

When you check a trading account, balance, equity, used margin and free margin often appear together. They sound similar, but answer different questions: How much money was originally in the account? How much remains after including unrealised profit or loss? How much collateral is tied up by current positions? How much room is left to absorb price movements or open new positions? Understanding these figures helps prevent the mistaken belief that risk is low simply because the account balance has not changed. Platforms may calculate and display them differently; this article explains common concepts, and the account agreement and product documentation take precedence.

What Is Margin?

Margin is collateral a trader must provide to hold a position. It is not a trading fee, nor is it necessarily the full purchase price of an asset. Think of it like a security deposit for a venue: the deposit meets a contractual requirement, but losses exceeding it may still have to be handled under the applicable rules. Trading margin supports the risk of a position and is calculated according to the market, position size, product and provider requirements.

Initial margin usually refers to the amount required to open a position; maintenance margin usually means the minimum equity that must be maintained while the position is open. Different markets may calculate these amounts by contract count, risk tier, asset volatility or portfolio risk. Margin systems differ across futures, forex, CFDs, securities financing and crypto derivatives; do not infer how margin changes from the label alone.

Balance and Account Equity

Balance generally reflects amounts already posted to the account, such as deposits, realised profit and loss, and settled charges; unrealised profit or loss on open positions may not yet be included. Equity generally includes the unrealised profit or loss on open positions. A common simplified formula is:

Equity ≈ account balance + unrealised profit or loss

For example, if the account balance is 5,000 yuan and open positions have an unrealised loss of 300 yuan, equity is approximately 4,700 yuan. If they have an unrealised profit of 300 yuan, equity is approximately 5,300 yuan. Commissions, financing charges, funding rates, interest or other unsettled items may also be included in practice. Unrealised profit or loss changes with prices, so equity can fluctuate in real time.

Used Margin and Free Margin

Used margin is the collateral tied up by current positions. Free margin is commonly represented by this simplified relationship:

Free margin ≈ equity − used margin

For example, with equity of 4,700 yuan and used margin of 1,200 yuan, free margin is approximately 3,500 yuan. This is not extra money granted by the platform; it is the remaining account-equity capacity after the amount already committed is deducted. It may change with unrealised profit or loss, charges, deposits and withdrawals, and margin requirements. Some accounts also include funds reserved for pending orders.

A platform may also show the margin level, commonly simplified as “equity ÷ used margin × 100%.” With equity of 4,700 yuan and used margin of 1,200 yuan, the margin level is about 392%. However, platforms differ in their warning and liquidation thresholds, calculation bases and terminology. A percentage threshold used by one platform cannot be applied directly to another.

How Do These Figures Change Together?

When prices move in favour of a position, unrealised profit generally raises equity and free margin. An adverse move creates unrealised losses, lowering both. If margin requirements rise, used margin may increase and free margin may fall even if prices have not moved. Withdrawals, fees and overnight financing also affect the available account capacity. An unchanged balance therefore does not mean the account's risk has stayed the same.

Some platforms use isolated margin, allocating a portion of margin to an individual position; others use cross margin, with account funds jointly supporting multiple positions. Cross margin can provide a shared buffer, but a loss on one position may affect the account's other positions. Isolated margin can ring-fence margin for a particular position, but does not eliminate the risk of loss on that position. The product rules determine the details.

What Can Happen When Margin Is Insufficient?

If equity falls, free margin shrinks or the margin level reaches a platform-defined condition, the platform may issue a margin warning, restrict new positions, require additional funds or liquidate positions. The sequence, notification method and time allowed vary by provider and product; do not assume there will always be ample advance warning. A market gap, insufficient liquidity or system delay may also prevent a position from being closed at the expected price. Read the margin-call and liquidation provisions in the account agreement.

Practical Account Checks for Beginners

1. Distinguish balance from equity: balance often excludes some unrealised profit or loss. Check equity and relevant charges when assessing real-time risk.
2. Confirm how margin is calculated for each position and whether multiple positions share margin.
3. Check free margin before opening a position and while it is open. Do not treat the platform's maximum permitted position as a safe position size.
4. Consider how an adverse price move would affect equity, and remember that margin requirements may change. Do not rely only on a one-time display.
5. Understand the platform's warning, trading restriction, liquidation and negative-balance terms. If the calculation is unclear, ask the provider for a written explanation.

In short: balance shows posted funds; equity includes open-position profit or loss; used margin shows how much collateral positions occupy; free margin is the remaining capacity after that amount is deducted. These figures help explain an account's condition, but do not guarantee future losses. This article provides general information and is not investment advice. Margin trading may result in the loss of some or all funds.