Margin Call in Forex: Stop Out Levels and How to Avoid Both

What is a margin call in forex?

A margin call in forex is a warning from your broker that your account equity has fallen to a set percentage of the margin locked in your open trades, often 100%. You usually cannot open new positions. If losses continue and the margin level reaches the stop out level, the broker starts closing your trades automatically.

Both events come from leverage: controlling a large position with a small deposit called margin. Our guide to leverage and margin explains the basics. This page covers what happens when that deposit runs low.

Balance, equity, used margin and free margin in plain words

Your platform shows five numbers while a trade is open.

• Balance – the money in your account counting closed trades only. It does not move while a trade is running.
• Equity – balance plus or minus the running profit or loss on open trades. It is what the account is worth if you close everything now.
• Used margin – the deposit the broker has locked against your open trades. It is not a fee, and it is released when they close.
• Free margin – equity minus used margin. It is the cushion left to absorb losses or open new trades.
• Margin level – equity as a percentage of used margin. This one number triggers both the margin call and the stop out.

Equity, not balance, drives everything. A $1,000 balance with a $600 running loss is a $400 account to the broker. On MetaTrader all five figures sit in the Trade tab, as shown in our MetaTrader tutorial.

What is the margin level formula?

Margin level % = equity ÷ used margin × 100

Take a $1,000 account with leverage of 100:1. Suppose EUR/USD is at 1.1000 and you buy 0.20 lots, which is 20,000 euros. The position is worth 20,000 × 1.1000 = $22,000, so the margin is $22,000 ÷ 100 = $220. Each pip, the smallest standard price step, is worth $2.

• At entry: equity $1,000, used margin $220, free margin $780. Margin level = 1,000 ÷ 220 × 100 = 455%.
• Price falls 150 pips: loss $300, equity $700. Margin level = 700 ÷ 220 × 100 = 318%.
• Margin call at 100%: equity must fall to $220. That is a loss of $780, or 390 pips.
• Stop out at 50%: equity must fall to $110. That is a loss of $890, or 445 pips.

Now make the same trade with 0.80 lots. Used margin is $880, free margin is only $120 and the margin level starts at 114%. Each pip is worth $8, so a fall of just 15 pips brings the margin call and a fall of 70 pips brings the stop out, with $560 gone. Same account, same pair, same leverage. Only the trade size changed. Test your own numbers in the margin calculator before you place an order.

Margin call vs stop out: what is the difference?

Years ago a margin call was a real telephone call asking for more money. Today it is automatic. When the margin level touches the margin call level, the platform flags the account, often by changing the colour of the account line. Nothing is closed yet, but you usually cannot open new trades.

The stop out level is the hard line. When the margin level falls to it, the broker’s system closes positions without asking you.

• Margin call level – a warning. Often 100%, though brokers vary.
• Stop out level – forced closing. Often 50%. Some brokers set it as low as 20% or 30%, and some set it higher.

In the EU, the UK and Australia, rules for retail clients (ordinary individual traders) require positions to be closed when equity falls to 50% of the required margin, so 50% is standard there. Elsewhere the broker chooses. A lower level is not a gift: it gives a losing trade more room but leaves you less money at the end. Both levels are in the account terms, so check them when you shortlist a broker with our independent broker comparison.

Which position gets closed first in a stop out?

On most platforms, including MetaTrader 4 and 5, the system closes the position with the biggest running loss first. Then it recalculates the margin level. If the level is still too low, it closes the next biggest loser, until the account is back above the line or nothing is left open.

You do not get to choose which trade goes, and the loss is final. It is taken from your balance, and if the price turns around a minute later you are no longer in the trade. Closing the biggest loser frees its margin, so the level usually jumps back up. An account holding one giant trade is simply closed flat.

How fast can a stop out happen in a gap?

In a quiet market you may have hours between the warning and the stop out. In a fast market you may have seconds, and in a gap you have none. A gap is a jump from one price to another with no trading in between. It happens most often over the weekend, when the market reopens at a different price from Friday’s close, and sometimes after major news.

The stop out level is a trigger, not a guaranteed price. The system closes your trades at the next price available, however far away that is. In the 0.80-lot example, suppose equity is $950 at Friday’s close, a margin level of 108%. On Monday EUR/USD opens 150 pips lower. The loss jumps by $1,200 and equity is now −$250. The margin level skipped past 100% and 50% without stopping, and the account closes below zero.

Spreads, the gap between buy and sell prices, also widen at the end of the New York trading day and around big news, which cuts equity on every open trade at once.

What is negative balance protection?

Negative balance protection is a rule that you cannot lose more than the money in your trading account. If a gap pushes the account below zero, the broker resets it to zero and absorbs the shortfall. In the example above you would lose the whole account, but you would not owe the extra $250.

Regulators in the EU, the UK and Australia require this protection for retail clients. It is not universal. Elsewhere it may be a voluntary promise with conditions, or not exist at all, and professional clients usually do not get it. Without it, a negative balance is a debt the broker can ask you to pay. Check the agreement for the exact company you sign with, as our guide to how forex regulation works explains.

How to avoid a margin call: seven practical ways

Every item below is ordinary risk management.

• Size trades from risk, not from margin. Decide how much you can lose, such as 1% of the account, then let the position size calculator turn that into a lot size. Margin that allows a trade does not make it a sensible size.
• Use a stop-loss on every trade. A stop-loss is an order that closes the trade at a loss you chose in advance. With a 1% stop in place, your own exit comes long before the broker’s. See stop-loss strategies for placement.
• Keep the margin level high. As a rule of thumb, keep used margin below about 10% of equity, a margin level above 1,000%. Treat anything under 300% as your own early warning.
• Count total exposure. Five small trades on pairs that move together act like one big trade. Check currency correlation before you stack positions.
• Never add to a loser to “average down”. Each new trade raises used margin while equity is already falling, so the margin level drops from both sides.
• Cut size before weekends and big news. Gaps ignore stop-losses as well as stop out levels. Check the economic calendar and decide what you are willing to hold.
• Act on the warning by closing, not by depositing. If a margin call arrives, reduce or close the losing position. Sending more money to defend a bad trade only makes the possible loss bigger.

Knowing the margin level formula will not stop a loss. It only tells you how close the broker is to closing your trades for you, and in a gap even that line can be jumped. Forex and CFDs are leveraged products with a high risk of losing money quickly. Only trade with money you can afford to lose.