What you'll learn
- Know what triggers a margin call and a stop-out
- Understand the order in which positions are closed
- Avoid ever reaching either
The margin call
Historically a phone call asking for more money; today an email, a platform alert, or nothing more than the account figures turning red. At the margin call level you can no longer open new positions. You can deposit, close positions, or wait, and waiting is the choice most traders make and most regret, because the next stage is automatic.
The stop-out
At the stop-out level the platform closes positions without asking. Most brokers close the position with the largest loss first and continue until the margin level is back above the threshold; some close everything. It happens at the current market price, which in a fast market may be well below the level that triggered it. A stop-out is the mechanism that, before negative balance protection, produced accounts owing money to brokers.
Why it feels unfair
Traders stopped out often complain that the market turned right afterwards. It usually did, because a stop-out happens at an extreme, and extremes reverse. The lesson is not that the broker was wrong to close the trade but that the position was far too large for the account to hold through an ordinary swing. A stop-out is a sizing failure that happened weeks earlier when the position was opened.
Never getting there
- Use stop losses; a stop closes a trade at a loss you chose rather than one the broker chooses.
- Keep effective leverage low enough that the stop-out level is unreachable in a normal day.
- Do not average down into a loser; it adds margin and lowers the level.
- Reduce before weekends and events when margin requirements rise.
- Check the broker's levels: 100 and 50 percent are common, but some use 80 and 30, or 50 and 20.
Example: From comfort to stop-out in one afternoon
Equity 1,000 dollars, 1:100 leverage. A trader opens 0.5 lots of GBP/USD, 62,500 notional, margin 625. Margin level 160 percent before the price moves. A 60-pip adverse move costs 300 dollars: equity 700, margin level 112 percent, margin call. Another 25 pips: equity 575, margin level 92 percent. At 50 pips more, equity 325, level 52 percent, and the next tick stops the account out. A 135-pip move in GBP/USD is an ordinary day.
Key takeaways
- A margin call warns at the broker's threshold; a stop-out closes positions at a lower one.
- Positions close largest loser first at market price.
- A stop-out is a sizing failure made when the trade was opened.
- Stops and low effective leverage make both irrelevant.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.