Margin calls and stop outs
Using leverage responsibly includes understanding what happens when an account no longer has enough equity to support its open positions. This lesson explains margin calls, stop outs and the figures used to monitor them. These account protections do not remove trading risk: leveraged CFDs carry a high risk of loss.
The figures behind margin
Margin is the amount required to open and maintain a leveraged position. It is not a fee or a maximum possible loss. Balance reflects the account’s funds after completed transactions, while equity includes the effect of floating profits and losses on open positions. If an open position loses value, equity falls even though the balance may remain unchanged.
Used margin is the amount supporting open positions. Free margin is equity minus used margin. Margin level expresses equity as a percentage of used margin: margin level = equity ÷ used margin × 100. For example, hypothetical equity of $3,000 and used margin of $1,000 produce a margin level of 300%. When used margin is zero, this calculation is not meaningful, so the platform may not display a percentage.
What a margin call means
A margin call occurs when an account reaches a defined margin threshold under the broker’s rules. It indicates that the equity supporting open positions has become low relative to the margin required. The term does not necessarily mean someone will telephone you. Depending on the account arrangements, it may appear as a platform warning or another notification, and new positions may be restricted.
There is no universal margin-call percentage. Check the applicable account terms rather than assuming that a threshold used in an example applies to your account. Do not rely on receiving or reading a warning before further losses occur. In a fast market, an account can move from a healthy margin level to a stop-out threshold before the trader has time to respond.
How stop out works
Stop out is the automatic closure of one or more open positions when the account reaches the applicable stop-out threshold. Its purpose is to reduce exposure when available equity is insufficient under the broker’s margin rules. Unlike a stop-loss order, which is attached to a position at a selected price, stop out is triggered by the account’s margin condition.
The order in which positions close, and whether closures are partial or complete, depends on the applicable rules. Closing a position usually releases margin, but it also realises that position’s floating profit or loss. Stop out does not guarantee a particular execution price or a maximum loss. Gaps and slippage can cause execution beyond the level at which the closure process was triggered.
Worked example: falling equity
Consider a hypothetical USD account with a $5,000 balance and one standard lot of EURUSD, equal to 100,000 euros. Assume used margin stays at $2,000 for this simplified example, with no other positions, commissions, swaps or other costs. The hypothetical margin-call threshold is 100% and stop-out threshold is 50%; these are not Xellion account conditions. With no floating profit or loss initially, equity is $5,000 and margin level is 250%.
One pip on EURUSD is worth $10 per standard lot. An adverse move of 300 pips therefore creates a $3,000 floating loss. Equity becomes $2,000, and margin level reaches 100%: the assumed margin-call threshold. At a total adverse move of 400 pips, the floating loss reaches $4,000. Equity is then $1,000 and margin level is 50%, triggering the assumed stop-out process. Actual execution, charges and any changes in margin requirements can alter the outcome.
Monitoring margin in MT5
In MT5, review balance, equity, margin, free margin and margin level in the account’s trading information. Read these figures together: a positive balance alone does not show whether an account is close to stop out. Several positions can also lose value at the same time, particularly when their underlying markets are related. Margin is an account-wide concern, not only a calculation for each individual trade.
Before opening a position, understand its margin requirement and how hypothetical losses would affect account equity and margin level. Higher available leverage can reduce the margin required for the same exposure, but it does not reduce the money lost per pip at the same position size. Stop-loss orders are not guaranteed protection against stop out. The next lesson explains how volatility, gaps and slippage can make losses and execution less predictable.
- Margin level equals equity divided by used margin, multiplied by 100.
- Margin-call and stop-out thresholds depend on the applicable account rules.
- Stop out can close positions automatically, without guaranteeing an execution price.
- Leveraged CFDs carry a high risk of loss; margin is not a loss limit.