Abstract：As margin and Stop Out Levels are key to consider always while opening trade, Out of the thousands of Broker around the world, Each retail forex broker or CFD provider sets their own Margin Call Level and Stop Out Level.
As margin and Stop Out Levels are key to consider always while opening trade, Out of the thousands of Broker around the world, Each retail forex broker or CFD provider sets their own Margin Call Level and Stop Out Level.
It‘s very significant to know what your broker’s Margin Call and Stop Out Levels are. A lot of traders dont even care to find out what they are before opening a trading live account, they just jump right into trading with any broker. These levels are often ignored or bypass by traders to the detriment of their account.
Series of forex brokers handle a Margin Call in different ways. Some brokers consider a Margin Call and Stop Out as just one and the same, meaning they will not send you a warning message, they will only just start closing your trades along with a message notifying you of the action just.
For instance, a broker may decide to set their Margin Call Level at 100% with no separate Stop Out Level. This means that if the Margin Level of your account drops below 100%. That your broker will just automatically close your position no need to send you any warnings.
On the other hand, Other brokers consider a Margin Call and Stop Out differently. They use a Margin Call as a kind of an early warning message to notify you that your positions are at risk of being liquidated Stop Out).
For example, a broker may set their Margin Call Level at 100% and their Stop Out Level at 20%.
This means that if your Margin Level drops lower than 100%, you will receive a WARNING from your broker that you need to close your trade or deposit more money or risk reaching the Stop Out Level.
It is when The Margin Level on your account continues to drop and reaches 20%, then and only then, will the broker automatically close your position (at the best available price).
Depending on the broker, a “Margin Call” can be one of two things:
• If there is a separate Stop Out, your broker sends you a warning that your balance has dropped below the required Margin Level percentage, meaning There is no enough Equity to support your open positions any longer.
• If there is no separate Stop Out, your broker automatically shutdown your trades, starting from the least profitable one until the expected Margin Level is met.
In the case you receive a Margin Call, and dont know your fate, below is a diagram to help you understand and know what will happen to your trade.
When there is another Margin Call and Stop Out Level, you should think of the Margin Call as a “warning shot” and the Stop Out as the automated action to reduce the possibility of your trading resulting in a negative balance.
As you received a “warning shot”, this gives traders more time and chances to manage their positions before the automatic liquidation of those positions occurs. This is slightly different from the traditional margin call policy in which the Margin Call and Stop Out Level are one and the same.
Without getting a “warning shot”. You simply get shot(automatic liquidation). In the end, it is absolutely your duty to ensure that your account get the margin requirements and in the event that if it is not met, your broker has the right to liquidate (“Stop Out”) any or all your open positions.
As a trader When you get a solid grasp of margin trading and the use of stop losses, proper position sizing, and risk management, a Stop Out can be easily prevented.
Margin Calls and Stop Outs occur due to overleveraging. Using more leverage can increase your gains, but it can at the same time increase losses, which will quickly deplete your Free Margin. The higher leverage you use, the quicker your losses can accumulate.
The Relationship Between Margin and Leverage
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