What is a Stop Out level

Written by Finacademy.io

January 19, 2021

A stop out level is also called a “stop out”, a “Margin Closeout Value”, “Liquidation Margin”, or a “Minimum Required Margin”. This is a concept that is fairly similar to the margin call level. When you are involved in Forex trading, a stop out level happens when a margin level falls to a certain percentage level. At this stage, the broker closes one or all of your open positions.

This takes place mostly because your trading account cannot support the open positions anymore. The lack of margin is to blame for this. Here are even more details regarding how a stop out level affects your trading activities.

About the stop out level

A stop out level also happens when the equity is below a certain percentage of your used margin. When you reach that specific level, the broker will begin closing out your positions, from the least profitable. This process stops when your margin level is above the stop out level once more.

The broker will immediately close your positions in order to protect you from any possible future losses. In short, the stop out is the act of liquidating your positions. It’s also worth noting that once the process of closing positions has started, it cannot be stopped or paused. This is mainly because it is an automated process.

In the case of multiple open positions

The situation can be even worse in case you have multiple open positions. In any case, the best idea when you are in this position is to have a talk with your broker. Knowing their exact strategy helps a lot. Usually, the position that has the biggest unrealized loss will be the first to go. Then the next one, and the next one, and so on and so forth.

This happens until the margin level goes back to 100% or even higher. In some cases, all of your open positions can be closed so you need to be very careful.

FINACADEMY is a platform run by a team of professionals with over 20 years of experience who have one goal in mind: to educate both beginners and experienced people in the art of trading and investing. This academy offers courses and e-books for those who really want to start learning about the industry and become more sophisticated traders. Our educational resources include crypto, Forex, stock market, indices, and CFD trading, among others.

Related Articles

Silver approached major resistance zone around $27.50/60

Silver approached major resistance zone around $27.50/60

Silver has raised through $27.55 levels this morning, alongside most risk assets. The metal has approached a strong resistance zone now and bears might be inclined to take control back soon. Also note that it has almost reached the fibonacci 0.618 retracement of the entire drop between $30.13 and $23.80 levels respectively.

USDJPY heading towards 112.50 to complete the structure?

USDJPY heading towards 112.50 to complete the structure?

USDJPY bulls are now looking poised to push through 112.00/50 mark, after have carved yet another higher low around 107.50. Please note it bounced off the trend line support since January 2021 lows as well. Looking higher from here for next few weeks.

Gold hits major resistance at $1799 yesterday. Reversal ahead?

Gold hits major resistance at $1799 yesterday. Reversal ahead?

Gold had raised through $1799 yesterday before reversing sharply towards $1770 before finding support again. The yellow metal is pulling back at the moment and seems to have carved a meaningful top already yesterday. If correct, $1786 might offer strong support.