T
he Margin Call Level and Stop Out Level depends entirely on your retail forex broker or CFD provider.
Brokers can set different levels for Margin Call and Stop Out or they can even choose to use just one of them.
Some brokers will not send you a warning message, they will simply just start closing your trades when you reach this level and they will only notify you that they are liquidating your trades (NOT IN ADVANCE)!
For example, if the broker decides to set their Margin Call Level at 100% WITHOUT setting a separate Stop Out Level, your positions will be automatically closed WITHOUT any warnings when your Margin Level drops lower than 100%. If you reach that level, a Hell of money will come down to Earth! Believe us!
However, there are some brokers who use both Margin Call and Stop Out Level. They use a Margin Call as a sort of an early warning message that your positions are at risk of being liquidated (Stop Out).
For example, a broker may set their Margin Call Level at 100% and their Stop Out Level at 20%.
This means that if your Margin Level drops lower than 100%, you will receive a WARNING message from your broker that you need to close your trade or deposit more money or risk reaching the Stop Out Level.
If you decide not to listen, hoping that the market will turn on your side, but your Margin Level continues to drop and reaches 20%, then the broker will automatically close your position (at the best available price).
Before you start to trade, it is VERY important to understand exactly what your broker set as a Margin call and stop out levels. Otherwise, your account balance can become negative while you are waiting for your warning sign.
Depending on the broker, a “Margin Call” can be one of two things:
If the broker put a separate Stop Out, it means that you will receive a warning that your account equity has dropped below the required Margin Level percentage. It usually says: “There is no Equity to support your open positions any further”.
If the broker didn’t separate the Margin call and Stop Out, this means that you won’t receive a warning notification and your trades will automatically be closing, starting from the least profitable one until the required Margin Level is met.
When the broker has separate levels of Margin Call and Stop Out, you could assume that the Margin Call is your “warning shot” and the Stop Out is the automated tool to minimize the chance of your account resulting in a negative balance.
Since you get a “warning shot”, this gives traders more time to manage their positions before the automatic liquidation of those positions occurs.
This is different from the traditional margin call policy where the Margin Call and Stop Out Level are one and the same. No “warning shot” is given. You simply just get “shot” (automatic liquidation).
That’s why it is VERY important to monitor your margin requirements at any point during the trade.
Otherwise, your broker has the full right to liquidate (“Stop Out”) any or all your open positions when the requirements are not met!
If you have deep knowledge and understanding about how margin trading, stop losses, proper position sizing, and risk management work, then you can chill out and prevent a Stop-Out from happening.
Remember that, the overleveraging triggers Margin Calls and Stop Outs to occur in many of the cases.
Not every time the saying ‘The more, the better works for our benefit!’ Especially in this case, so you need to be extra careful what your leverage is!
Using more leverage can increase your gains, but it can also increase losses, which will quickly deplete your Free Margin. The more leverage you use, the faster your losses can accumulate.
