Margin call and stop out: the two levels that decide whether the account survives

Margin call and stop out are the two levels that decide whether your account lives or gets closed
out. Many traders confuse the two and, worse, most do not know where their own broker sets them —
because every broker sets them differently.

1. Four numbers to keep apart

• Balance — the money in the account before open positions are counted.
• Equity — balance plus the running profit and loss of open positions. This is
  the real number.
• Used margin — the capital locked to hold those positions.
• Margin level —
  Equity ÷ Used margin × 100%. This is what governs everything.

Example: equity $1,000, used margin $500 → margin level 200%. The position loses another $300,
equity falls to $700 → margin level drops to 140%.

2. Margin call: the warning

When margin level reaches the margin-call threshold, the broker warns you that the remaining
capital is no longer a safe cushion for the open positions. You can usually keep them, but
you cannot open anything new.

The most common level is 100% — equity exactly equal to used margin. That is a
convention, not a rule.

3. Stop out: the broker closes for you

If the market keeps moving against you, margin level falls to the stop-out threshold. At that
point the broker closes your positions automatically, starting with the worst,
until margin level is back in safe territory.

This is not a punishment but a protection: it keeps the account from going negative and leaving
you owing the broker.

The usual stop-out level is 50%. Some brokers run 80%/20%,
others something else again. The difference matters: the same account holding the same position has
markedly more room at one broker than at another.

4. Why you need your own broker’s numbers

Take two traders in the same position, same capital, same size:

• Trader A at a 50% stop out — closed out when equity is half the used margin.
• Trader B at 20% — held longer, carried deeper into the loss before being cut.

Neither level is better in the abstract. A high stop out cuts early, protecting what is left but
being swept more easily on a retrace. A low one gives the position room and can cost nearly the whole
account. What matters is that you know which one you are trading under.

5. Five ways to stay away from a stop out

• Always set a stop loss. A stop loss is
  you choosing the exit; a stop out is the broker choosing it for you, at a far worse price.
• Cut size rather than add capital. Margin scales with volume — halving the
  position doubles the loss you can absorb.
• Do not use all the leverage on offer. A broker allowing 1:500 is not advice to
  trade at 1:500.
• Watch margin level, not balance. Balance does not move while a position bleeds;
  equity and margin level do.
• Be careful around major news.
  Margin requirements are often raised before big events,
  and your margin level drops even before price moves.

6. Costs eat into margin level too

Something few traders notice: spread,
commission and
overnight financing all come straight out of
equity. So trading costs push your margin level down, not merely your profit.

On a small account holding several positions, accumulated costs can be the thing that drives
margin level to the stop out — rather than any single price move. Which is why controlling costs is
a survival question, not only a profitability one.

Sources

• BabyPips — Different Forex Brokers Have Different Margin Call and Stop Out Levels
• EarnForex — Stop-Out Level vs. Margin Call
• Equiti — What is a stop-out level and how does it differ from a margin call

This article is for information only and is not investment advice. Margin call and stop-out levels differ from broker to broker — check the terms of the one you use. Leveraged forex and CFD trading carries a high level of risk and can cost you your entire deposit.