Stop-Out Level vs. Margin Call
When choosing a Forex broker and planning to open your first account, you will probably hear a lot about
To start with, let’s quickly review the definition of margin. For many people, trading on margin is one of the biggest motives to trade Forex. With Forex, you do not actually need $100,000 to trade $100,000 worth of currency. You might need, for example, only $1,000 if your broker offers you leverage of 1:100. This means that for every dollar you put down in your deposit, you are allowed to trade $100 worth of currency. This is referred to as trading on margin. It is incredibly powerful and can make you rich overnight — or destroy you overnight, which is considerably more likely!
You can rephrase the 1:100 leverage above as 1% margin. This means that the broker requires you to present 1% of the trade as a minimum security margin.
Crucial to understanding of when a margin call or a stop-out may be issued on your account is the concept of a margin level. A margin level is your account's equity divided by your account's used margin:

Now when you join a Forex broker, you will read about their margin call and
Another way of doing things is a margin call at 100%. That means once your equity drops below 100% of the minimum requirement to trade, you will not only get a margin call, but your trades will be closed out just like at a
How do you avoid this horrible thing happening to you? To avoid getting a margin call and/or hitting a
Some Real Life Examples
Example 1. You have an account with a broker that has 50% margin call level and 20%
Example 2. A broker has 200%/100% margin call and
Example 3. You have a $5,000 account at a broker with 150%/100% margin call and stop-out levels. You open a trade using $1,000 margin. You would get a margin call when your loss on that trade reaches $3,500 (so your equity is $1,500 or 150% of your $1,000 used margin). You would get stopped out when your loss reaches $4,000 (so your equity is $1,000 or 100% of the $1,000 used margin). However, if you opened a bigger trade, using your whole account size ($5,000) as margin, you would get a margin call immediately, and since stop-out is 100%, you will not be even able to open that position, or otherwise, it would get closed out instantly, since you have to maintain at least $5,000 equity in your account.
Three Important Notes
- The amount of used margin for position maintenance does not depend on the stop-out level. It only depends on the trade size, leverage, and the broker's margin requirements. For normal Forex trades, it is usually just the trade size divided by the leverage. For example, 0.1 lot on EUR/USD at 1.1000 with 1:100 leverage will require
0.1 × 100000 × 1.1000 ÷ 100 = $110 margin. - The margin call and stop-out mechanisms do not completely prevent the possibility of an account balance becoming negative due to the losses on open trading positions. In rare cases, it is possible for such a situation (when account balance goes below zero) to appear in Forex. A notable example is January 15, 2015, Swiss franc gap that resulted in EUR/CHF positions closing hundreds pips below the stop-losses and stop-outs failing miserably. However, normally, brokers only seek redemption on very large negative balances as it is quite difficult for them to make the account holder compensate the loss.
- It is important to remember that margin call and stop-out levels are defined in relation to margin and equity, not to loss and equity. So, it is impossible to tell the exact loss level when any of those levels will trigger without knowing both the amount of used margin and the equity of your account.