Lesson 12: Caution: Different Forex Brokers Have Varying Margin Call and Stop-Out Levels

Module 5: Margin Trading
Date Published: April 12, 2024
Last Updated: October 24, 2024
4 Minutes
Lesson Overview
Caution: Different Forex Brokers Have Varying Margin Call and Stop-Out Levels

You’ve learned about margin calls and stop-out levels in the previous lessons. These are crucial concepts you must always keep in mind when trading. 

However, you should also know that not all brokers have the same margin call and stop-out levels. This information will help you avoid having your trades liquidated without your knowledge. 

In this lesson, you’ll learn more about how different brokers’ margin calls and stop-out levels can affect your trades. 

Lesson Highlights

  • A margin call level is a broker-determined threshold that signifies when you’ll get a margin call. 
  • A stop-out level is the limit at which your broker will start closing your open positions until your margin level goes above the stop-out level. 
  • Different brokers can set varying margin calls and stop-out levels. 
  • Knowing your broker’s margin call and stop-out policies can help you avoid unnecessary trading disruptions. 

What’s a Margin Call Level? 

Before discussing the different margin calls and stop-out levels brokers impose, let’s quickly recall your past lessons. 

A margin call level refers to a threshold brokers set based on your trading account’s equity. This level is often expressed in percentage values (e.g., 100%, 150%, 200%).

Most brokers typically set their margin call levels at 100%. This means you will get a margin call if your account’s margin level reaches 100% or falls below it.

Getting a margin call doesn’t mean having your broker ring you up. It can be any form of communication in which your broker updates you with your account’s status.

You can use the formula below to determine your account’s margin level. 

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

Let’s use it in a sample scenario. 

Suppose you have a $1,000 account balance and USD 500 floating profits from your two open positions. Each position has a USD 250 required margin. 

This means your account’s equity will be USD 1,500, while your used margin is USD 500. 

Now, let’s use the formula to calculate the margin level. 

Margin Level = (USD 1,500 / USD 500) * 100% 

Margin Level = 3 * 100% 

Margin Level = 300% 

In this scenario, your margin level will be 300%, which is still above the 100% margin call level threshold. As stated earlier, you’ll receive a margin call once your 300% margin level falls to or below the 100% baseline. 

Upon receiving a margin call, you can either close some of your open positions, deposit more funds, or disregard the call for the time being. If you choose to ignore the margin call, you’re exposing yourself to the risk of reaching your broker’s stop-out level. 

What’s a Stop-Out Level? 

Stop-out levels, or stop-outs, are closely related to the margin call level. You can think of them as the margin call level’s lower limit. 

While brokers typically set margin call levels at 100% equity, stop-outs are commonly placed even lower—often as low as 20%. 

Generally, you’ll only ever hit your broker’s stop-out level if you neglect margin calls for an extended period. At this point, your account will no longer have enough equity to cover your existing trades. 

When this happens, your broker will start liquidating or closing your existing trades, starting with the most unprofitable ones. Your broker will continue closing your open positions until your margin level exceeds the stop-out level. 

Depending on your broker’s policies, you may be allowed to deposit additional funds during the stop-out process. 

Margin Call and Stop-Out Levels Diagram 

Not every broker handles margin calls and stop-outs the same way. One broker may set their margin calls at the usual 100%, while another may require 250% or even higher.

There are also brokers that treat margin calls and stop-outs in the same way. In such cases, you won’t get a warning if your account’s equity reaches or falls below this level. Instead, your broker will start closing your trades as if you’ve hit the stop-out level. 

That’s why it’s essential to familiarize yourself with your broker’s policies to avoid unexpected disruptions when trading. 

This diagram can help you better understand how your broker’s margin call and stop-out policies can affect your trades. 

 

In the next lesson, you’ll study another pair of closely related concepts that traders often get confused about: margin and leverage. 

 

 


 

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