Free Margin & Its Role in CFD Trading

Margin in CFD trading is the deposit that is needed to open and continue a leveraged position while engaged in CFDs and spread trades.

As you trade on margin, you will enjoy complete market exposure by only submitting a fraction of a position's full value, whereas, without margin, retail traders' access to the broader financial markets would be rather limited.

Ultimately, margin can change your trading experience, be it CFDs or standard investing.

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What Is Free Margin & How Does It Work?

Free margin refers to the equity in a trader's account that is not tied up in a margin for open positions. In other words, free margin is the usable margin that traders can use during their investing pursuits.

Used margin is the amount of account equity currently committed to maintaining open positions, but free margin is the difference between equity and used margin. So, this is the amount that is available to open new positions if needed, and it is also the amount that can be moved against existing positions. If the open positions are profitable, traders' equity will increase, and so will their free margin. Similarly, if open positions lose money, equity decreases, and so does the free margin.

Traders can use free margin to determine how much room they have on their current holdings before they are hit with a margin call. Margin calls generally occur when the account's margin drops below 100%.

Free margin also lets traders know how much they can withdraw from their account if they have no hedged positions.

» Learn more about margin calls, what they are, and how to avoid them

How to Calculate Free Margin

When you want to calculate the margin needed for a long position for the price of the stock purchase, you will need to multiply the number of shares x the price and the x margin rate.

For example, if your equity is $1,000 and you have used $500 of your margin, your margin level is ($1,000/$500) x 100.