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## Understanding Free Margin & How to Calculate Your Funds for Withdrawal

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Understanding Free Margin & How to Calculate Your Funds for Withdrawal

What is a Free Margin?

Free Margin refers to the equity in a trader’s account that is not invested in currently open positions.

Free Margin is also known as “Usable Margin” because, as the name suggests, it’s margin that you can use.

Free Margin can be thought of as three things:

1) The amount available to open NEW positions.

2) The amount that EXISTING positions can move in the opposite direction than invested, before you  receive a Margin Call (100% Margin Level) or Stop Out Call (50% Margin Level).

How to calculate the Margin Level:

Let’s say that Equity is 10,000 and Margin is 5,000. To calculate the Margin Level, you would use the  following formula:

Margin Level: Equity/ Margin and the result multiplied by 100 to have the result in percentage

(10,000 ÷ 5,000) x 100 = 200%

3) The amount available to withdraw in case you have no hedged positions.

• How to calculate Free Margin for Forex Instruments:

Let’s say that:

Account Currency: EUR

Balance: €10,000

Equity: €11,000

Account Leverage: 30

Trade: EUR/USD

Volume: 1 Lot

Contract Size: €100,000

Hedge: No

To calculate the Free Margin for Forex Instruments, you would use the following formula:

Equity – ((Lots * Contract Size in Account Currency) / Specific instrument Leverage)

€11,000 – ((1 x 100,000) ÷ 30) = €7,667

• How to calculate Free Margin for Non-Forex Instruments:

Let’s say that:

Account Currency: EUR

Balance: €10,000

Equity: €11,000

Account Leverage: 30

Trade: AIRBUS (Current price: €120)

Shares Leverage: 5

Volume: 1 Lot

Contract Size: 100 Shares

Hedge: No

To calculate the Free Margin for Non-Forex Instruments, you would use the following formula:

Equity – ((Lots * Contract Size * Instrument Current Price in Account Currency) / Specific instrument Leverage)

€11,000 – ((1 x 100 x 120) ÷ 5) = €8,600

How to calculate how much you can withdraw:

Scenario 1: No Hedging

Withdrawn Amount = Free Margin

In the example above you can withdraw as much as €96,657.38

Notes:
• Free Margin is constantly changing when the market is open. In the event that you decide to withdraw all your available Free Margin, you will instantly get a Margin Call indicator.  This indicator allows you to stop-out before realizing any/more losses.

• Balance, equity, and margin cannot be withdrawn.

Balance is the amount of money you have deposited + closed trades (profit/loss)
Equity is the balance + open trades (profit/loss)

Margin is the ‘Usable Margin’. To calculate Usable Margin, you would use the following formula:

Equity – Free Margin = Usable Margin

It is the amount of money that is tied up in the open trades.

Margin Level = Equity ÷ Margin

In other words, Free Margin is the only number that shows the idle and available money the client has at any moment.

Scenario 2: Hedging

At EuropeFX, we allow hedging. This means that when a client opens a buy order and a sell order on the same instrument the “Margin” decreases and the “Free Margin” increases. This allows the client to increase the Margin Level and avoid a stop-out without the need to close a trade or deposit more money.

During Hedging, the Free Margin on the platform is not all available for withdrawal. The client needs to carry out additional calculations to find the available amount to withdraw.

Withdrawn amount = Equity – Margin Hedges

Let’s say that:

In the above example, Free Margin is equal to Equity and there are two open trades.

In the event that one of these two trades is closed, the Free Margin will be reduced:

You simply need to calculate the Margin of one of the hedges. In the above example, the Margin used by one EUR/USD trade is equal to €3,333.33 ((1Lot x 100000Contract Size) ÷ 30).

Then, you need to subtract the Margin you just calculated from the Equity:

Withdrawn amount = €99974 – €3333 = €96641

In case you have multiple hedges, you need to do this calculation for all the hedges and subtract the Margin from the Equity.

If you have a 1 Lot Buy order on an asset and 0.5 Lot Sell on the same asset, you need to calculate 0.5 Lot of Margin and subtract it from the Equity.

Why do you need to do that?

Well, when you hedge, you do it to increase your Free Margin but since you have a hedge open, your Free Margin is not correct. When you decide to close the hedge, the Free Margin will decrease and in case you have withdrawn all the available Free Margin while you are hedged, then a stop-out call may occur.