This is the most common question we receive. And it reveals a fundamental misunderstanding of what free margin actually is.
Let's State the Problem Clearly
A trader opens a position. They look at their account. They see several hundred USDT of "free margin." So they think: "I have a cushion, I'm protected."
A few minutes later they get liquidated.
The answer comes down to one sentence:
Think of Free Margin as "spare cash" you haven't spent yet, not a shield that protects you. It is simply money sitting on the sidelines.
When a trade starts losing money, it doesn't just affect that one trade, it drains your entire account balance in real-time. Because your "spare cash" is part of that total balance, it shrinks right along with your losses.
A Concrete Analogy
Imagine you have $1,000 in a glass jar. This is your Balance.
- The Margin (The "Locked" Cash): You take $200 out of the jar and put it in a safe to cover a bet you made. You cannot touch this money; it is "locked."
- The Free Margin (The "Jar" Cash): You look at the jar and see $800 left. You think, "Great, I have $800 of spending money."
- The Reality (The "Hole"): Your bet starts losing. It loses $300.
Here is the part most people miss: That $300 loss doesn't come out of the $200 in the safe. The safe stays locked at $200. The loss comes directly out of the jar.
Your "spending money" (Free Margin) was $800, but because of the loss, there is now only $500 left in the jar.
In short:
Used Margin: The money in the safe (it stays the same).
Free Margin: The money in the jar (it shrinks the second you start losing).
Your "Free Margin" isn't a separate pile of money that is safe from the trade. It is just the leftovers, and if the main pile gets smaller, the leftovers get smaller too.
Analogies are great, but let's look at the cold, hard numbers from a real Gold (XAU) trade to see this 'drain' in action.
The Real Case
Based on a real account event. Figures are representative; personal details have been anonymized.
Here is why that "safety cushion" feeling is misleading and here is what actually happened on a real XAU/USD position:
Open positions
Time | Direction | Entry Price | Qty | Notional Value |
14:16:30 | LONG XAU | 4,968.84 USD | 5 XAU | ~24,852 USDT |
14:22:10 | LONG XAU | 4,932.96 USD | 5 XAU | ~24,673 USDT |
— | Net Position | 4,950.90 USD (avg) | 10 XAU | ~49,526 USDT |
Account state at time of trade
Initial equity | 800.00 USDT |
Leverage used | ×300 |
Margin rate | 0.3333% |
Used margin | 4,950.90 × 10 × 0.003333 = 165.03 USDT |
Free margin | 800.00 − 165.03 = 634.97 USDT |
These 634.97 USDT of free margin are what the trader sees and interprets as a "safety cushion." This is the classic mistake.
What Happened Next
XAU prices began to fall. Each dollar lost across 10 XAU = 10 USDT of negative PnL. This PnL applies to total equity, not to free margin.
Liquidation threshold
Threshold | 95% × used margin = 0.95 × 165.03 = 156.78 USDT |
XAU price reached | 4,883.81 USD |
Position PnL | (4,950.90 − 4,883.81) × 10 = −670.90 USDT |
Equity at that point | 800.00 − 670.90 = 129.10 USDT |
Liquidation threshold | 156.78 USDT |
Result | 129.10 < 156.78 → Threshold crossed liquidation triggered |
Execution time: 113 milliseconds. Balance returned: ~129 USDT.
What About the Chart That "Didn't Show" That Price?
In short, the chart displays the mid price; liquidation executes at the real bid price. The gap is normal, documented, and is not a malfunction. "Mid price vs bid price" is also explained in depth there.
TL;DR
Free margin is not a buffer against losses, it is unengaged collateral, but fully exposed to floating PnL. On a ×300 position, a 67-point drop across 10 XAU is enough to consume 670 USDT of equity and trigger liquidation, even if 634 USDT of free margin was showing at the start.
I Have a Balance Left So the Liquidation Was Unjustified? This is what actually happened
If you still have questions, our support team is here to help. Reaching out directly is the fastest way to get clarity and avoid any misunderstanding.
