Margin Calls and Stop-Outs Explained

The four numbers on the account screen

Margin mechanics run on four figures the platform shows continuously. Balance is the result of closed trades. Equity is the balance plus or minus the profit and loss of everything still open. Used margin is the collateral locked up by open positions. Free margin is equity minus used margin — the buffer available both for new positions and for absorbing losses. Only equity moves with the market; the balance sits still until a position is closed.

Margin level: the ratio that matters

Margin level is equity divided by used margin, shown as a percentage. At 1,000% the account holds ten times the collateral its open positions require; at 100% equity has fallen to exactly the margin locked up. Because equity moves while used margin usually does not, the ratio falls as open positions lose — and it falls faster the larger the share of the account committed as margin in the first place.

What a margin call actually is

A margin call is a notification, triggered when margin level drops through a threshold set out in the firm's terms. It is a warning that the buffer has thinned, not an event that changes any position. It may arrive as an email, an in-platform alert, or not at all, depending on the firm and on how quickly price is moving. Nothing about a margin call obliges the market to pause while it is being read.

The stop-out

The stop-out level is the lower threshold at which the platform begins closing positions automatically, to stop the account being drawn further below the collateral its positions require. Firms publish both levels in their contract specifications, and the values differ between firms and between jurisdictions: in some regimes a standardised close-out rule for retail accounts is set by the regulator, while in others the threshold is entirely the firm's own.

Which position closes first

Once a stop-out triggers, positions close in an order defined by the platform — most commonly the largest floating loss first, though some configurations close by size or by margin released. Each closure frees margin and lifts the margin level, so the process can stop after one position or run through several. Partial closes are possible, and every close happens at the market price available at that instant, not at the stop-out level itself.

When the mechanism cannot keep up

A stop-out is only as fast as the market allows. Across a weekend gap or a violent repricing there may be no tradable price between the trigger and a level far below it, and positions then close well past the threshold. That is precisely the scenario negative balance protection addresses — where it applies, the account cannot be left below zero — and it is the reason the margin level is worth watching well before it approaches the threshold rather than after.