The stop-out level is a safety mechanism used by brokers in margin trading: it’s the margin-level percentage at which the broker’s system begins automatically closing your open positions to stop further losses. In practice, a stop-out is the point where your account no longer has enough equity to support the margin required for your active trades, so the platform forces liquidations to prevent the account from going into a negative balance. Trading carries risk; this article explains how stop-outs work and how you can manage the risk they represent. This is general information and not personalised advice.
Margin, equity and how the stop-out threshold is measured
To understand stop-outs you need three linked account values: balance, equity and used margin. Your balance is the cash in the account. Equity is balance plus any unrealised (floating) profit or loss from open positions. Used margin is the portion of your funds that are locked to keep those positions open. Brokers track the ratio called margin level, calculated as equity divided by used margin, expressed as a percentage: Margin Level = (Equity ÷ Used Margin) × 100.
The stop-out level is set as a margin-level percentage. When your margin level falls to or below that percentage the broker’s system starts closing positions automatically. Before this happens many brokers also have a margin‑call threshold that serves as an earlier warning; a margin call gives you a chance to add funds or reduce exposure, while a stop-out ends your control over the positions.
A step-by-step example
Imagine you have $1,000 in your account and you open a trade that requires $200 used margin. At entry your equity is $1,000 and the margin level is 500% (1,000 ÷ 200 × 100). If that trade moves against you and produces a $600 unrealised loss, equity drops to $400 and the margin level falls to 200% (400 ÷ 200 × 100). If losses continue and equity reaches $40, the margin level equals 20% and you may hit a stop-out if your broker’s stop-out level is 20%. At that point the broker will begin closing positions—usually the biggest losing trades first—until the margin level rises above the stop‑out percentage or all positions are closed.
If you have several trades open the platform commonly closes the most unprofitable position first, then the next, and so on, because closing those releases the most used margin and helps restore the margin level. Different brokers may follow slightly different rules, but the general idea is the same: reduce used margin quickly by closing losing positions.
Margin call versus stop-out: the difference in practice
A margin call is a warning: it signals that your account is approaching danger and you should act by depositing funds or closing trades. A stop-out is the enforcement stage: when the margin level reaches the broker’s stop-out percentage the system will automatically liquidate positions without waiting for you to intervene. In fast-moving markets you can sometimes jump from a healthy margin level to stop-out very quickly, so it’s unsafe to rely solely on receiving a margin call in time to react.
How brokers set stop-out levels and what common values look like
Brokers set stop-out levels as part of their risk management and business model. Typical stop-out settings vary widely: some brokers use conservative levels (for example 100%, meaning equity equals used margin) while others offer more room (common retail values are 50% or 20%). Account type can matter too—micro or beginner accounts may have higher stop-out thresholds than pro or ECN accounts. Because these settings are company policies, always check the account specifications and trading conditions your broker publishes before you trade.
What increases the risk of being stopped out
Several behaviours and market conditions make a stop-out more likely. Using high leverage increases position size relative to capital so small adverse moves create large unrealised losses. Opening many positions at once or using oversized lots ties up most of your margin and leaves little free margin to absorb normal volatility. Trading around major news events can produce sharp price moves and slippage that quickly erase equity. Running automated systems (EAs) without supervision, or leaving trades open without stop-loss orders, is another common cause. Finally, some bonus or promotional credits are not treated the same as cash equity for the purpose of margin calculations, so they may not protect you the way you think.
Practical measures to reduce stop-out risk
You can’t prevent all market losses, but you can reduce the chance of a stop-out through routine risk management. Size positions from the risk you are willing to accept, not from how much leverage you can access: many experienced traders risk only a small percentage of equity per trade (commonly 1–2%). Set a stop-loss on every trade to define maximum loss automatically. Keep a margin buffer by avoiding tying up all of your equity as used margin—maintain free margin so unexpected moves don’t push your margin level straight to the stop-out. Choose leverage appropriate to your strategy and experience; lower leverage gives you more room for market noise. Use a demo account to test position sizing and stop-loss placement before trading live. Finally, check your broker’s margin rules and whether they offer negative balance protection; that affects how aggressive the broker’s liquidations might be and whether you could ever owe money beyond your deposit.
Practical example: managing multiple positions
Suppose you have three trades open and one becomes a large losing position while the others are roughly breakeven. Instead of letting the big loser run and hoping other positions recover, you could close or scale back that single position to free margin immediately. That action can lift your margin level and avoid the automatic liquidation sequence that would otherwise close multiple positions in order of loss. Trading plans that include pre-defined position-sizing, stop-loss levels and maximum concurrent exposure help you make these decisions without emotion when the market moves against you.
Risks and caveats
A stop-out is a technical, automated safety built into margin trading platforms; it prevents further depletion of the account and reduces the risk of a negative balance, but it also realises losses and removes your discretion. Slippage can make stop-loss orders and liquidations execute at worse prices than expected, especially in fast or illiquid markets. Broker policies differ on how they select which positions to close and whether hedged positions are treated differently, so you must understand your broker’s specific rules. Negative balance protection is not universal—some brokers offer it, some do not—so be careful when expecting protections that may not exist. Remember that markets can gap over price levels, and in extreme moves you may still face larger-than-expected losses. Trading involves risk and this content is general information, not personalised financial advice.
Key Takeaways
- The stop-out level is a broker-set margin-level percentage at which the platform starts automatically closing positions to prevent further losses.
- Margin Level = (Equity ÷ Used Margin) × 100; when this percentage reaches the stop-out threshold, forced liquidation begins.
- You reduce stop-out risk by sensible position sizing, using stop-losses, keeping free margin, and choosing appropriate leverage.
- Always check your broker’s margin, margin‑call and stop‑out rules before trading; trading carries risk and this is not personalised advice.
References
- https://arongroups.co/glossary/stop-out/
- https://en.arincen.com/blog/forex-beginners/What-is-a-forex-stop-out-level
- https://www.babypips.com/learn/forex/what-is-a-stop-out-level
- https://www.axiory.com/trading-resources/trading-terms/what-is-stop-out-level
- https://mondfx.com/what-is-stop-out/
- https://www.equiti.com/sc-en/news/trading-ideas/what-is-a-stop-out-level-and-how-does-it-differ-from-a-margin-call/