What is a stop-out level?

What is a stop-out level? Lesson No 37

Today, we will look at what the term “Stop Out Level” or simply “Stop Out” means in forex trading.

Consider the Stop Out Level to be comparable to the Margin Call Level we discussed previously, but with one key difference, it is far more serious!

So, in forex trading, the Stop Out Level means a specific percentage (%) level. This level is important because it shows when your broker steps in and automatically closes one or more of your open positions.

So, why does this happen? It’s all about margins. Your trading account can only handle so much, and if your Margin Level becomes too low, the broker will take action for the protection of both you as well as them.

Let me explain further, the Stop Out Level activates when your Equity falls below a particular percentage of your Used Margin.

And once you reach this Stop Out Level, your broker takes action. They’ll begin closing out your transactions, starting with the least profitable ones, until your Margin Level returns to above the Stop Out Level.

Simply put, it’s a safety net that your broker utilizes to keep everything under control.

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Let’s discuss what goes on when your Margin Level reaches or falls below the Stop Out Level.

When this happens, your broker immediately takes action. They’ll quickly close any or all of your open positions, protecting you from further losses. This quick closing technique is known as a Stop Out.

Now, here’s the deal, a Stop Out is not questionable. Once it starts, it’s very much set in stone. Why? Because it is automated. There are barely any chances for discussion because your broker’s system takes care of it.

Consider this: trader liquidation is the process by which your broker closes your trades because your account is in difficulty. When you contact the broker’s support team, they understand and empathize with you. However, once the process of closing your transactions due to trader liquidation begins, the support team lacks the authority to intervene or stop it. It’s a difficult scenario because, while they understand what you’re going through, they can’t change the outcome once it’s begun.

And what about the Stop Out Level? It’s also known as Margin Closeout Value, Liquidation Margin, or Minimum Required Margin.

Example: Stop Out Level at 20%

Let’s learn statistics. Suppose your forex broker sets the Stop Out Level to 20%.

So, what does this mean for you? Well, it’s fairly simple, if your Margin Level reaches 20%, your trading platform will automatically close your transaction.

In simple terms, the stop-out level equals the margin level at 20%.

Stop Out Level = Margin Level @ 20%

Now, recollect our previous lesson, What exactly is a Margin Call Level?


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Let’s imagine you received a Margin Call when your Margin Level reached 100%. However, you chose not to deposit additional funds because you expected the market would change direction.

That’s not a wise decision. It’s like placing a risky bet!

And, guess what? Your risky bet did not pay off. The market kept falling.

You now face a 960-pip loss. If each pip is worth $1, your floating loss is $960!

So your equity now stands at $40.

Equity = Balance + Floating P/L

$40 = $1000 – $960

Your Margin Level is now 20%.

Margin Level = (Equity / Used Margin) x 100%

20% = ($40 / $200) x 100%

Once you’ve opened a position, the Used Margin will not fall below $200. Why? Because that’s the Required Margin you needed to begin the transaction in the first place.

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At this point, your position is automatically closed, often known as “liquidated.”

When your position closes, the previously tied-up Used Margin becomes available. It transforms into Free Margin.

But here’s the difficult part, your $960 floating loss has become a reality. So your new balance is now $40!

In addition, because you have no open trades, your Equity and Free Margin are both $40.

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Let’s see how your account details appear in your trading platform at different Margin Level points

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Let’s discuss what happens because of a Stop Out in your account. It feels like a hit in the feelings, right?

When you have many active positions, the broker often closes the least profitable one first. Each closed position frees up the Used Margin, which contributes to your Margin Level.

However, if closing one trade does not bring your Margin Level back above 20%, your broker will continue to close positions until it does.

The Stop Out Level was set up to prevent you from losing more money than you have deposited. If your trades keep losing, you could find yourself with a negative account balance!

Brokers aren’t interested in tracking you down for unpaid balances, therefore a Stop Out tries to prevent your balance from being negative.

What if I have multiple positions open?

Okay, let’s look at the scenario in which you have multiple positions open in your forex trading journey.

Consider this, you’re not only trading one position, but multiple. So, what happens when you find yourself in this situation?

It’s like walking into a casino, isn’t it? Let me explain how things work when there are multiple positions at play.

First and foremost, take in mind that each broker handles liquidation differently. So it’s important to understand your broker’s approach.

But here’s a common example to help you understand what could go wrong if you take on too much risk.

Let’s say the Stop Out level is set to 100%. If your Margin Level falls below 100% of the required margin, the position with the biggest unrealized loss will be automatically closed!

Consider this: if you have many positions, the one with the largest unrealized loss is closed first. Then go on to the next greatest losing position, and so on until your Margin Level reaches 100% or greater.

Liquidation may be cruel. Depending on the size and unrealized profit or loss of your holdings, they may all be liquidated to meet the margin requirements! Isn’t it like a financial rollercoaster?

Here’s the deal, it is completely your responsibility to monitor your account and ensure that you maintain the necessary margin to fund your open trades.

Consider this your wake-up call. When your position is automatically liquidated, don’t complain to your broker.

You can still cry, but keep it for when you look at yourself in the mirror.

Now that we’ve covered the important metrics in your trading platform, let’s apply what you’ve learned about margin trading to various trading scenarios. Ready to jump in?