Margin calls and stop-out mechanics
How brokers measure your margin, when they warn you, and when they close your positions for you.
Equity, used margin and margin level
Used margin is the amount your broker holds against open positions. Equity is your balance plus floating profit or minus floating loss. Margin level is equity divided by used margin, shown as a percentage. For example, equity of 10,000 dollars against 2,000 dollars of used margin gives a margin level of 500 percent. As losses grow, equity falls and the margin level falls with it.
Margin call and stop-out
A margin call is a warning, often issued when the margin level falls below a set percentage. A stop-out is the point at which the broker closes positions automatically, usually starting with the largest losing trade, to stop the account from falling further. The exact levels differ by broker and jurisdiction, so read your broker's terms rather than relying on a general figure.
Closing happens at market prices, which may be far from the level you were watching. In fast markets, the position can close at a worse price than the stop-out level, and a ladder with many open rungs can take several closes before the margin level recovers.
What to do about it
Keep margin use well below the stop-out level at your deepest planned rung, not at the current rung. Use a margin level estimate in your planning, keep spare balance outside the trading account, and never rely on a stop-out to limit your losses. The planner's margin limit is designed to keep you away from this point.
Key takeaways
- Margin level = equity divided by used margin.
- A margin call is a warning; a stop-out is an automatic close.
- Plan margin for the deepest rung, and read your broker's exact stop-out level.