Every leveraged account has a point at which the broker stops asking and starts closing. It is defined arithmetically, applied automatically, and disclosed in the client agreement. Yet it is routinely the single most misunderstood term in retail trading, partly because the vocabulary is inherited from an era when a margin call was an actual telephone call.
The three numbers that govern liquidation
- Equity: balance plus unrealised profit and loss, recalculated on every tick.
- Used margin: the sum of margin requirements across all open positions.
- Margin level: equity divided by used margin, expressed as a percentage.
Margin level, defined
Margin level is the only figure that matters for liquidation. It is equity divided by used margin, times one hundred. Deposit 5,000 and open positions requiring 1,000 of margin, and with no unrealised profit or loss the margin level is 500%. Lose 1,000 on those positions and equity falls to 4,000, giving a margin level of 400%. The used margin has not changed; only the numerator moved.
Two things follow. Adding funds raises the margin level without closing anything. Closing a position lowers used margin, which raises the level too — but it also realises whatever loss the position carried, which lowers equity. Whether closing helps depends on which effect is larger, and for a losing position it usually does help, because the margin released is typically larger than the incremental loss realised.
The call and the stop-out are different thresholds
A margin call level is a warning. When margin level falls through it — 100% is a common setting — the platform flags the account, the broker may send a notification, and no position is closed. Nothing is required of you except a decision: add funds, reduce exposure, or accept the risk.
The stop-out level is where the broker acts. When margin level falls through it, positions are closed automatically until the level is restored above the threshold. The broker does not ask, and the closure happens at whatever price is available at that moment, which in a fast market may be materially worse than the price that triggered it.
The order of closure is set by the broker, not by you
Most brokers close the largest losing position first, on the grounds that it releases the most margin. Some close in the order positions were opened. A hedged pair of positions can therefore be broken by a stop-out, leaving one leg exposed to a market that then moves against it. The client agreement states the rule; the platform does not.
The regulated close-out rule
Retail accounts under the European and UK rules operate under a close-out requirement set at 50% of the initial required margin, applied on an account basis. If total margin in the account falls to half of what was required to open the positions, the broker must begin closing. Australia adopted an equivalent rule. The intention is to bound retail losses before an account goes negative.
Two qualifications matter. First, the rule is a floor for the broker's obligation, not a ceiling on the broker's discretion: a broker may set a stricter internal level, and many do. Second, it is calculated on the account as a whole rather than position by position, so a profitable position can subsidise a losing one right up to the point where the account-level threshold is breached and both are closed.
Entities outside those jurisdictions are not bound by the rule. An offshore entity of the same brand may set a stop-out at 20%, or lower, alongside much higher leverage. The combination is what makes the entity question in an account application substantive rather than administrative.
A worked example
An account holds 2,000. The trader opens two standard lots of a major pair at 30:1 leverage, requiring roughly 3,333 of margin per lot at a notional of 100,000 — too much. Scale down: one mini lot of 10,000 units at 30:1 requires about 333 of margin. Open six of them and used margin is roughly 2,000, exactly the balance, giving a margin level of 100% at the moment of opening.
That account is already at the margin call threshold before the market has moved. A stop-out at 50% is reached after a loss of only 1,000, which on 60,000 units of notional is a move of under 170 pips. The example is deliberately extreme, but it is the shape of a large fraction of blown retail accounts: the position size was chosen against the maximum the margin allowed, rather than against the loss the account could absorb.
Sizing so the stop-out is not the plan
- Decide the maximum loss you will accept on the account, as a percentage of equity.
- Work out the price move that would produce that loss at your intended position size.
- Check that this move is smaller than the move that would take you to the stop-out level.
- If it is not, reduce the position size until it is.
- Place a stop-loss at the level you chose, so your exit is your decision rather than the broker's.
When the stop-out cannot save you
The automatic close-out assumes a price is available. In a gap — a weekend re-opening, a currency peg abandoned, an unscheduled announcement — the market moves from above the threshold to far below it without trading in between. The stop-out fires at the first available price, which can leave the account below zero.
This is why negative balance protection is a separate and important term rather than a redundancy. Where it applies, the broker absorbs the shortfall and the account is reset to zero. Where it does not, the shortfall is a debt. The two are indistinguishable in normal conditions and completely different in the conditions that matter.
Reading your own numbers
Every platform displays balance, equity, used margin, free margin and margin level, usually in a single row that most traders never look at. Free margin is what remains available to open new positions; margin level is what determines whether existing ones survive. During a live position, watch the level rather than the profit and loss figure — it is the one that maps directly onto the broker's action.
Before opening a position, it is worth computing what margin level it will leave you at, and what price move takes that level to the stop-out. Both take under a minute and both are more informative than any indicator on the chart about how the trade can end.
Common questions
Does a margin call mean I have to deposit money?
No. In retail trading it is a status flag, not a demand. You may add funds, close positions, or do nothing. Doing nothing is a decision to accept the risk of the stop-out.
Which position gets closed first at a stop-out?
It depends on the broker's stated policy — most commonly the largest losing position, since it releases the most margin. Some close chronologically. The client agreement is the only reliable source, and the rule matters most if you hold hedged positions.
Can I be stopped out while showing an overall profit?
Only if your used margin has risen relative to equity, which can happen if the broker raises margin requirements on an instrument — a common step before major scheduled events. The requirement change moves the denominator, and the margin level falls without any price move.
Is the 50% close-out rule a guarantee against losing more than half?
No. It is the point at which closing must begin. In a gapping market the actual fills can be far below the threshold, which is where negative balance protection, if the account has it, becomes the operative term.
