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.

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