Margin Calls and Stop-Out

First a warning: the margin call

When the margin level falls to the provider's margin call line, you get a notice: add funds or reduce your positions. It's only a warning; the positions are still open.

Further down: stop-out

If the level keeps falling to the stop-out line, the provider automatically closes one or more positions. Which one, and at what price, is up to the provider's rules; in a fast market or a gap, the fill can be worse than at the trigger.

Stop-loss ≠ stop-out

A stop-loss is an exit condition you set yourself; a stop-out is the provider's last-resort risk control. Don't treat a stop-out as a stop-loss: it comes later, costs more, and doesn't guarantee your loss stops at any particular number.

Key takeaways

• The sequence: adverse price move → unrealized loss → equity falls → margin level falls → margin call warning → stop-out.
• A margin call is a warning. A stop-out is carried out automatically by the platform, and you can't choose which position is closed or at what price.
• A stop-out doesn't guarantee your loss stops at a set number; in fast markets and gaps the fill can be worse. It's no substitute for your own stop-loss and position sizing.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Just press ▶: on which step does the margin call come? On which step does the stop-out start? Is A or B closed first?
2. Move the stop-out line from 50% to 30% and play again: how many steps later is the stop-out? Is the final balance higher or lower?
3. Turn on "Fast-market slippage 2%" and replay: how do the stop-out fill price and final balance change?
4. Turn on "Give A a $94 stop-loss": does the account still reach the stop-out line? How different is the final balance compared with no stop?

Quiz and explanations

1. What's the difference between a margin call and a stop-out?

Answer: A margin call is a warning; a stop-out closes positions automatically.The margin call line is higher and serves as a reminder. Positions are closed automatically only if the margin level keeps falling to the stop-out line.

2. In a stop-out, who decides which position gets closed?

Answer: The platform's rules.The order and price of closing are set by the platform's rules. A common approach is to close the biggest loser first, but it varies by platform.

3. Which statement about stop-losses and stop-outs is correct?

Answer: You set the conditions for a stop-loss; the platform triggers a stop-out when the margin level hits its line.A stop-loss is your risk management tool; a stop-out is the platform's last-resort safety net, usually later and more costly. Both can slip in a gap.

Terms in this lesson

• equity (Equity): Account balance + current floating profit or loss.
• margin call (Margin Call): When your account drops below maintenance margin, you must add funds or your positions will be closed.
• margin level (Margin Level): Equity ÷ used margin × 100%; the lower it is, the more danger you're in.
• stop-loss (Stop Loss): Automatically closes a position when price moves against you to a preset level, capping your maximum loss.
• stop-out (Stop Out): When your margin level falls to the broker's limit (for example 50%), the system closes your positions automatically.