How it works
It acts as a buffer for new positions and for losses on existing positions. As unrealized losses reduce equity, free margin can shrink even though the original margin requirement has not changed.
What to check
Monitor free margin alongside total exposure rather than treating it as spare cash. Opening more positions because free margin is available can rapidly increase leverage.
- Separate equity from free margin
- Track total exposure
- Leave room for volatility
Limits and risks
A low free-margin buffer makes an account more vulnerable to normal market volatility. It can also reduce the ability to manage positions when spreads widen or prices gap.
Primary sources
BIS 2025 Triennial Central Bank Survey↗FCA: Contracts for difference (CFDs)↗General information only. Investment products can lose value, and terms, fees and regulation can change.