Margin call and stop out
Why the two thresholds sit at fixed percentages of used margin
Margin level is equity divided by used margin, times 100. Equity is your cash plus or minus the profit or loss on open positions. Used margin is the part of your cash the broker sets aside while a position is open. Both thresholds are written as percentages of that same used margin, so they move with your position size, not with your account size.
A broker sets a margin call at a level such as 100 per cent and a stop out lower, such as 50 per cent. At 100 per cent, equity equals used margin. At 50 per cent, equity is half of used margin. The gap between the two is the room the broker keeps for itself before it closes anything. That gap varies between brokers, and the exact figures are in your client agreement.
The cost of the gap is real. If your stop out is 50 per cent and your used margin is ₦108,500, the broker will act when equity reaches ₦54,250. That is ₦95,750 below your opening equity of ₦150,000. At ₦10,850 per pip on one standard lot of EUR/USD, that is about 9 pips of loss. A tighter stop out of 80 per cent would act at ₦86,800, only 6 pips down.
What the broker does between the warning and the close
At the margin call level, the broker sends a notice. It does not close anything yet. The notice tells you that your equity has fallen to the threshold. From that point, every pip against you reduces equity further. The broker is not waiting for your permission. It is watching the number.
If equity keeps falling and reaches the stop out level, the broker closes positions. It chooses which ones. The usual rule is the largest losing position first, because that frees the most margin. It may close one position or several, and it may close them at the current market price, which can be worse than the level that triggered the stop out if the market is moving fast.
The money left after a stop out is what remains of your equity. If the broker closed at 50 per cent of ₦108,500, your remaining equity is about ₦54,250. That is your loss on the trade plus any commission or swap. The broker does not refund the difference between the stop out level and the price it actually got.
How to keep your own exit above both thresholds
You can set a stop loss order at a price that closes the trade before the margin call. That order is yours, not the broker's. It closes the position at the price you chose, and it does not wait for equity to fall to a percentage. The cost is that you decide the loss in pips before you open, and you accept it when the price reaches it.
To place that stop loss, you need three numbers: your equity, your used margin, and the pip value. From the earlier example, equity is ₦150,000, used margin is ₦108,500, and one pip is ₦10,850. A margin call at 100 per cent leaves ₦41,500 of room, which is about 4 pips. A stop out at 50 per cent leaves about 9 pips. Your own stop loss should sit well inside the smaller of those two numbers, not at the edge.
The broker's thresholds are not yours to change. You can only change your position size, your leverage, or your stop loss. A smaller position uses less margin, which raises your margin level and gives you more pips of room. Lower leverage does the same. Neither removes the risk. They only move the two thresholds further away in pip terms.
From ₦217,000 to a stop out in 50 pips
| Step | Amount | Note |
|---|---|---|
| Account balance | ₦217,000 | money you deposited, converted from naira at the rate your broker quotes |
| Position opened | 1 standard lot EUR/USD | 100,000 units at about 1.0850 |
| Value of one pip | ₦10,850 | 10 units of the quote currency per pip, converted to naira at about ₦1,085 per unit |
| Margin held at 1:100 leverage | ₦108,500 | 1 per cent of the position's notional value |
| Free margin after opening | ₦108,500 | ₦217,000 equity minus ₦108,500 used margin |
| Margin level at opening | 200 per cent | equity ₦217,000 divided by used margin ₦108,500, times 100 |
| Loss that brings margin level to 100 per cent | ₦108,500 | equity must fall to equal used margin, so the loss equals the free margin |
| That loss in pips | 10 pips | ₦108,500 divided by ₦10,850 per pip |
| Margin call at 100 per cent | equity ₦108,500 | the broker warns you here; it does not close anything yet |
| Loss that brings margin level to 50 per cent | ₦54,250 | equity must fall to half of used margin, so a further loss of ₦54,250 |
| That further loss in pips | 5 pips | ₦54,250 divided by ₦10,850 per pip |
| Stop out at 50 per cent | equity ₦54,250 | the broker closes positions to bring the account back above its threshold |
Your broker may round these figures, apply a different stop out level, or charge a commission or swap on top. The exact thresholds are in your broker's client agreement, and they vary between brokers.
Doing it once, step by step
Work through these steps once with the figures from the lesson, then repeat them with your own account size and your broker's published thresholds.
- 01
Find your broker's two thresholds
Open your client agreement or the contract specifications page. Look for the margin call level and the stop out level, both written as percentages. Write them down. They vary between brokers, so do not use a number from a forum or a video.
- 02
Write down your equity and used margin
Log in to your platform and note your equity, not your balance. Note the used margin for your open positions. If you have no open positions, used margin is zero and margin level is not defined. Open a demo position first if you need a number to work with.
- 03
Calculate your pip value in naira
For one standard lot of EUR/USD, one pip is 0.0001 times the position size. Convert that to naira at the current exchange rate. In the lesson example, one pip is ₦10,850. Your figure will differ if the rate has moved or if your lot size is different.
- 04
Work out the pips to each threshold
Subtract the equity at the margin call from your current equity. Divide by the pip value. That gives the pips to the warning. Repeat with the equity at the stop out. The second number is larger because the stop out sits lower.
- 05
Place your stop loss inside the smaller number
Choose a stop loss that is closer than the pips to the margin call. If the margin call is 4 pips away, a stop loss at 4 pips is too late. Use a smaller position or a tighter stop so your own exit triggers first. The broker's stop out then becomes a backstop you never reach.
- 06
Check the cost before you open
Add any commission and swap to your expected loss. These charges reduce equity and bring both thresholds closer. If the total cost is more than you are willing to lose on the trade, reduce the position size or do not open it.
The mistake most people make here
Many people think a margin call is a request they can ignore, and that the broker will wait. It is not a request. The stop out can arrive minutes later, and the broker chooses which positions to close, usually the largest losing one first, not the one you would have chosen. The fix is to know your broker's two thresholds before you open a position, and to set your own exit while the margin level is still well above 100 per cent.Check yourself
You have ₦150,000 in your account and open 1 standard lot of EUR/USD at 1.0850 with 1:100 leverage. One pip is worth ₦10,850. What is your margin level at opening?
Used margin is 1 per cent of the position, or ₦108,500. Margin level is ₦150,000 divided by ₦108,500, times 100, which is about 138 per cent.
Using the same figures, how many pips of loss take you from 138 per cent to a 100 per cent margin call?
Equity must fall from ₦150,000 to ₦108,500, a loss of ₦41,500. Divide by ₦10,850 per pip: about 4 pips.
Questions that come up next
What does margin level mean in naira terms?
Margin level is a percentage, not a naira amount. It compares your equity to the margin your broker has set aside. If your equity is ₦150,000 and used margin is ₦108,500, your margin level is about 138 per cent. That figure tells you how much room you have before a margin call or stop out.
How much does a stop out cost me in naira?
It depends on your broker's stop out level and your position size. With ₦150,000 equity, ₦108,500 used margin and a 50 per cent stop out, the broker acts when equity reaches ₦54,250. That is a fall of ₦95,750 from your opening equity. On one standard lot of EUR/USD, that is about 9 pips of loss, plus any commission or swap.
Can I choose which position the broker closes?
No. At stop out, the broker chooses. The usual rule is to close the largest losing position first, because that frees the most margin. It may close one or several positions. It may also close at the current market price, which can be worse than the level that triggered the stop out if the market is moving fast.
What happens to my money after a stop out?
What remains is your equity after the broker closes positions. If the stop out was at 50 per cent of ₦108,500, about ₦54,250 is left. That is your loss on the trade plus any commission or swap. The broker does not refund the difference between the stop out level and the price it actually got.
How do I find my broker's exact thresholds?
They are in your broker's client agreement. The levels vary between brokers. One broker may set a margin call at 100 per cent and a stop out at 50 per cent. Another may use different figures. Check the agreement before you open a position, because the broker may also round these figures or charge a commission or swap on top.
Can I avoid a stop out by adding more money?
Adding money raises your equity and your margin level, which can move you away from the stop out. But it does not remove the risk. The position is still open and can lose more. The safer step is to set your own stop loss order above both thresholds, so the trade closes before the broker acts.
The words used on this page
- Equity
- Your cash plus or minus the profit or loss on open positions. It changes as the market moves. It is the top number in the margin level calculation.
- Used margin
- The part of your cash the broker sets aside while a position is open. It is not a fee. It is held as a buffer. It is the bottom number in the margin level calculation.
- Margin level
- Equity divided by used margin, times 100. It is a percentage. Both the margin call and the stop out are written as percentages of used margin.
- Stop out
- The level at which the broker closes your positions without asking. It is lower than the margin call level. The broker chooses which positions to close.
- Pip
- A small unit of price movement. For EUR/USD at 1.0850, one pip is 0.0001. On one standard lot, one pip is worth ₦10,850 in this example.
- Stop loss order
- An order you set to close a trade at a chosen price. It is yours, not the broker's. It can close the trade before the margin call or stop out.
What to take away
- A margin call is a warning, not a request. A stop out follows if equity keeps falling, and the broker closes positions without asking.
- Both thresholds are percentages of used margin. The gap between them is the room the broker keeps before it acts.
- With ₦150,000 equity, ₦108,500 used margin and one standard lot of EUR/USD, a 50 per cent stop out costs about ₦95,750, or 9 pips.
- Check your broker's exact thresholds in the client agreement. They vary between brokers, and the broker may round them or add commission or swap.