what is stop out level in forex? (2024)

How do you define "StopOut Level" or "StopOut"?

The Margin Call Level from the previous lesson is comparableto the Stop Out Level, but the Stop Out Level is considerably worse!

A stop out level in forex trading is the point at which oneor all of your open positions are automatically stopped("liquidated") by your broker when your margin level drops to aparticular percentage (percent) level.

This liquidation takes place as a result of the tradingaccount's inability to fund the open positions due to a margin shortage.

The Stop Out Level, in more precise terms, is reached whenthe Equity is lower than a certain portion of your Used Margin.

Once your margin level drops below the stop out level, yourbroker will automatically begin closing out your transactions, starting withthe least profitable one. This process will continue until your margin levelrises again.

The broker will swiftly liquidate any or all of your openpositions if your margin level is at or below the stop out level in order toshield you from potential future losses.

A stop out is when you close all of your positions.

Remember that a Stop Out is not a decision. Since theliquidation process is computerized, once it has begun it is typicallyimpossible to stop.

The customer service staff of your broker won't likely beable to assist you beyond simply listening to you sob loudly on the phone.

For instance: StopOut Level at 20%

Suppose your forex broker has set the Stop Out Level at 20%.

This means that if your margin level rises to 20%, yourtrading platform will automatically close your position.

Stop Out Level =Margin Level @ 20%

Let's continue using the what is a Margin Call Level examplefrom the prior lecture.

You already received a margin call when the margin levelreached 100%, but you opt not to add extra money to your deposit since youanticipate a market reversal.

The market is still declining.

You are now 960 pip in loss.

You currently have a floating loss of $960 at $1/pip.

Your Equity is now $40 as a result.

Equity = Balance +Floating P/L

$40 = $1000 - $960

Your margin level is currently 20%.

Margin Level =(Equity / Used Margin) x 100%

20% = ($40 / $200) x100%

Because $200 was the Required Margin required to open theposition, the Used Margin cannot fall below that amount.

Your position will now be automatically closed (or"liquidated") at this time.

The Used Margin that was "locked up" will bereleased after your position is closed.

It'll turn into Free Margin.

However, the outcome will be disappointing for you.

Your $960 floating loss will be "realised,"bringing your new Balance down to $40.

As a result of the lack of any open deals, your equity andfree margin are both $40.

Here are the account metrics that would appear in yourtrading platform at each threshold for the margin level:

The broker often terminates the trade that was the leastprofitable first if you have many positions open.

Used Margin is "released" with each trade that isclosed, raising your margin level.

However, if terminating this trade doesn't raise the MarginLevel above 20%, your broker will keep closing positions until it does.

You should not lose more money than you have placed thanksto the Stop Out Level.

If your trade kept losing, soon you wouldn't have any moneyleft in your account and it would have a negative balance.

What if I HaveSeveral Roles Available?

The case where you were trading a single position wascovered in the example above. However, what if you had several roles available?

Considering that every broker has a unique liquidationprocedure, be sure to verify with yours.

However, this method is widely used and will at least giveyou a good indication of the terror you can encounter if you're selling too much.

Assume that the Stop Out level is set to 100%.

You will experience an AUTOLIQUIDATION of the position with the highest unrealized loss if the marginlevel ever falls below 100% of the required margin!

In the event that you have numerous open positions, the onewith the largest unrealized loss is closed first, then the next largest losingposition, and so on, UNTIL the Margin Level (Maintenance Margin) is back at100% or above.

Your open positions might all need to be closed in order toachieve the margin requirement, depending on their size and unrealized P&L.

Keep in mind that YOU, and YOU alone, are in charge ofkeeping an eye on your account and ensuring that you are always preserving thenecessary margin to fund your open positions.

Let's take what you've learned so far about margin tradingand put it all together Utilisingvarious trading scenarios now that we'vecovered all the crucial metrics you need to understand in your tradingplatform.