Margin call and stop-out

Nobody rings you. The platform watches one number - your equity divided by your used margin - and when it crosses the broker's stop-out threshold, your position is closed by a machine executing a market order into whatever liquidity exists at that moment. This lesson is the arithmetic of how you get there, walked to the end.

What number is the platform watching?

Equity is your balance plus the running profit or loss of your open positions. Used margin is the collateral from lesson 7, and it does not move as price moves. The margin level is the first divided by the second. A funded account with no positions has no used margin and no margin level to breach; the moment a position opens, the countdown number exists.

At a margin level of 100%, your equity exactly covers the collateral. Most brokers set their warning - the margin call - there: new positions blocked, a notification sent. At the stop-out level, commonly 50%, the platform closes positions at market, largest loser first at many brokers, until the level recovers. Both thresholds are on the specification page. Neither is negotiable in the moment.

How far does price have to move?

A fixed distance you can compute at entry, which is the point of this lesson. The equity that can drain before stop-out is your balance minus half your used margin. Divide that by the notional and you have the adverse move, as a percentage of price, that ends the position. The worked example runs it with real numbers, and the answer for a heavily-margined account is uncomfortable in every currency.

What actually happens at the stop-out?

A market order, with everything module 1 and lesson 5 said about market orders. It fills at the next available price, which in the conditions that produce stop-outs - fast moves, thin books, news - is beyond the threshold, sometimes well beyond. The close crystallises the loss at that price. Your remaining equity is whatever the fill left, the used margin returns to it, and the position is gone. The platform did what the specification page said it would do, at the worst prices of the move, because that is when margin levels breach.

Two positions make it worse in a way beginners miss: they share one equity number. A losing position drains the margin level that a second, winning position depends on, and the stop-out engine does not care which position breached it.

What this means for you

Run this arithmetic before you open a position, with your numbers. The adverse move to stop-out is a fixed percentage the moment your size is chosen, and choosing a size is choosing that percentage. On the example account it is a move a single bad session can produce. The platform will not warn you twice, it will not wait for the market to come back, and the price it closes you at belongs to the fastest part of the move. That is the machine, that is its arithmetic, and it was all knowable at entry.