Free margin represents the amount of available funds in a trading account that can be used to open new positions after accounting for margin requirements on existing positions. Free margin equals account equity minus used margin, providing a real-time measure of available trading capacity. This metric is crucial for position sizing and risk management in leveraged trading.

Monitoring free margin helps prevent margin calls and forced position closures by ensuring adequate capital reserves. As market prices move against open positions, free margin fluctuates with unrealized profits and losses. Maintaining sufficient free margin allows traders to weather adverse market movements and take advantage of new opportunities without forced liquidation.

Real-world example: A forex trader with $10,000 account equity and $3,000 used margin on EUR/USD positions has $7,000 free margin available for additional trades or to absorb potential losses on existing positions.