A Margin Call is a warning from your broker when the equity in your trading account is close to being insufficient to support your open positions. A Stop Out is the point where the broker automatically closes positions to stop the account balance from falling further into negative territory. Both are safety mechanisms used by virtually every forex broker, yet many traders don't fully understand when they trigger, how they're calculated, or how to avoid them. This guide covers the basics through to a worked calculation example.
Understand Equity, Margin, and Free Margin First
Before margin call and stop out make sense, you need to know four terms — they're the variables in every calculation.
- Balance — the funds in your account before accounting for the profit/loss of any open positions
- Equity — the real-time value of your account (Balance plus or minus the floating profit/loss of open positions)
- Used Margin — the funds locked up as collateral to keep all open positions active
- Free Margin — what's left of Equity after Used Margin is deducted, available to open new positions or absorb market volatility
The most important variable is Margin Level, which indicates how safe your account is. The formula is:
Margin Level (%) = (Equity ÷ Used Margin) × 100
The higher the Margin Level, the safer the account, since Equity is comfortably larger than the margin in use. Conversely, as Margin Level keeps falling due to floating losses, the account moves closer to the danger zone.
What Is a Margin Call and When Does It Happen
A Margin Call is triggered when Margin Level drops to the threshold set by the broker (commonly around 100%, though some brokers set it higher or lower). At this point the platform sends a notification that margin is running low, and the trader needs to choose one of the following.
- Deposit additional funds to raise Equity
- Close some losing positions to free up Used Margin
- Leave it and wait to see how the market moves (high risk if price keeps moving against the position)
The key point is that a Margin Call is only a notification — the broker doesn't close anything at this stage. But if the trader takes no action and the market keeps moving against them, the account will keep heading toward the Stop Out level.
What Is a Stop Out and How Is It Different From a Margin Call
Stop Out is a Margin Level threshold set lower than the Margin Call level. Once it's reached, the broker's system will automatically close positions, starting with the one carrying the largest loss, to free up Used Margin and push Margin Level back out of the danger zone. If Margin Level is still below the Stop Out threshold after the first position closes, the system keeps closing the next one until the level recovers.
Stop Out levels vary by broker and account type. For example, Tickmill sets its Margin Call at 100% and Stop Out at 30%, while Exness sets Margin Call at around 60% and Stop Out anywhere from 0% to 30% depending on account type. Some account types can carry a real risk of losing more than the deposited capital if risk isn't managed carefully. Before funding a live account, always confirm the exact Margin Call and Stop Out levels in the broker's official documentation rather than relying on marketing pages or third-party reviews.
One thing worth remembering: these thresholds are set by the broker's internal policy, not by law. The level of protection you get if a broker mismanages this process — including how client funds are segregated and what recourse you have in a dispute — depends entirely on which regulated entity you open your account with. A broker authorised by a top-tier regulator such as the FCA, ASIC, or CySEC is generally required to hold client funds separately and offer a formal complaints process; an unregulated or loosely regulated offshore entity may not offer the same safeguards even if it quotes the same Margin Call and Stop Out percentages. Always check which specific entity your account agreement is with before you judge how protected your funds actually are.
Margin Call vs Stop Out Comparison Table
| Aspect | Margin Call | Stop Out |
|---|---|---|
| Meaning | Notification that margin is running low | Automatic closure of positions |
| Who acts | The trader has to decide | The broker's system closes automatically |
| Typical level | ~100% (varies by broker) | ~10-50% (varies by broker/account type) |
| Outcome | Still a chance to fix the situation | Positions are closed at a loss immediately |
A Worked Margin Level Calculation Example
Suppose a trader deposits $1,000 into an account, then opens a 0.5-lot EUR/USD position at 1.1000, which uses $550 of Used Margin (leaving $450 of Free Margin).
| Scenario | Equity | Used Margin | Margin Level | Status |
|---|---|---|---|---|
| Start (no profit/loss yet) | 1,000 | 550 | 182% | Safe |
| Price moves against the trade, floating loss of 450 | 550 | 550 | 100% | Approaching Margin Call |
| Floating loss grows to 715 | 285 | 550 | ~52% | Near Stop Out (at a 50% threshold) |
| Floating loss reaches 835 | 165 | 550 | 30% | Stop Out reached — system closes the position automatically |
The further price moves against the position, the lower Margin Level falls, until it hits the threshold that forces the broker to close positions automatically. These figures are a simplified illustration only — the actual numbers depend on lot size, currency pair, and leverage used.
How to Avoid Getting Margin Called or Stopped Out
Margin Calls and Stop Outs are best prevented with disciplined risk management from the start, not by waiting for the platform to make the decision for you. Consider the following.
- Don't use more leverage than you need — high leverage lowers Used Margin, but it also makes Margin Level far more sensitive to price movement
- Set a Stop Loss on every position — this caps the maximum loss upfront, so Equity doesn't keep draining toward the Stop Out level
- Don't open lot sizes that are too large for your capital — bigger lots mean higher Used Margin and a lower Margin Level from the outset
- Always keep some Free Margin in reserve — don't tie up almost all your equity in margin with no room to absorb volatility
- Watch out around major economic releases — sharp volatility during news events can drag Margin Level down fast, with little warning
- Monitor Margin Level regularly — platforms like MT4/MT5 display this figure in real time, so check it whenever you have multiple positions open
- Check whether a swap-free account suits your needs — traders who need to avoid overnight interest, including those following Islamic finance principles, can usually request a swap-free (Islamic) account from most brokers. Margin requirements and spreads on these accounts can differ slightly from standard accounts, which affects how quickly Margin Level erodes on positions held for more than a day
Conclusion
A Margin Call is a warning sign that the margin in your account is running low, while a Stop Out is the point where the broker automatically closes positions to stop losses from spiralling further. Both are calculated from Margin Level, which is determined by Equity and Used Margin. Understanding this mechanism, combined with sensible leverage, consistent use of Stop Loss orders, and keeping Free Margin in reserve, goes a long way toward reducing the risk of an account being closed out unexpectedly.
Frequently Asked Questions (FAQ)
What's the difference between a Margin Call and a Stop Out?
A Margin Call is only a notification that leaves the decision to the trader. A Stop Out is the point where the broker's system closes positions automatically, with no action required from the trader.
If I get stopped out, does my account balance go to zero?
Not necessarily. The system closes the most unprofitable position first to bring Margin Level back up. That said, in extremely volatile markets, slippage can still cause a larger-than-expected loss.
Are Margin Call and Stop Out levels the same across all brokers?
No. Every broker and account type sets its own levels — for example, some set Margin Call at 100% and Stop Out at 30%, while others set Stop Out as low as 0%. Always check these figures in the broker's official terms before opening an account, and confirm which regulated entity you'd actually be trading with.
What's the most effective way to avoid a Margin Call?
Sizing your lots appropriately for your capital, setting a Stop Loss on every position, and avoiding excessive leverage are the most basic and effective ways to reduce this risk.
References: Tickmill, Exness Help Center
