Margin calls and stop-outs

A margin call is a warning that your account equity has fallen too low to comfortably support your open trades. A stop-out is what happens if it falls further: the broker automatically closes positions to stop your losses growing beyond your funds.

Margin level

Brokers track your margin level, a percentage calculated as:

Margin level = (equity / used margin) x 100

When you have no open losses, equity is high and the margin level is comfortable. As losing trades eat into equity, the margin level drops.

Margin call and stop-out thresholds

Each broker sets its own levels, so always check yours. For illustration, a broker might use:

• Margin call at 100% - you receive a warning and usually cannot open new trades.
• Stop-out at 50% - the platform starts closing your positions, often the biggest loser first, until the margin level recovers.

A worked example

Now suppose the price falls:

At the stop-out, the trade is closed and the loss is locked in. A move of under 1.5% in the exchange rate has cost most of the account. (Thresholds and prices are illustrative.)

How to avoid reaching this point

• Trade smaller position sizes relative to your account.
• Use a stop-loss order so trades close at a level you chose, long before a stop-out.
• Avoid using all your available margin at once.
• Keep an eye on open positions, especially around major news.

Key takeaways

• Margin level = equity divided by used margin, as a percentage.
• A margin call is a warning; a stop-out automatically closes trades.
• Thresholds vary by broker, so check your broker's terms.
• Sensible sizing and stop-losses help you avoid stop-outs.