Understanding Margin Calls and Stop-Outs

Margin calls and stop-outs are broker-side safety mechanisms that activate when losses on open positions reduce account equity too far relative to the margin being used.

Margin Level

Margin level is typically calculated as account equity divided by used margin, expressed as a percentage. As losses grow, equity falls and margin level drops accordingly.

Margin Call and Stop-Out

A margin call is a warning, often triggered at a broker-defined margin level threshold, alerting a trader that their account is getting close to a critical point. A stop-out is a further, lower threshold at which the broker automatically begins closing positions, typically starting with the largest losing one, to prevent the account balance from going negative.