A Forex stop out is when all of a trader’s active positions in the foreign exchange market are automatically closed by their broker.


This happens when a trader’s margin level falls to a specific percentage – known as the stop out level – meaning that they can no longer support their open positions. The level at which the stop out is enacted varies among brokers.


A stop out is not optional, it is an automatic process and, once initiated, it is not usually possible to prevent it from proceeding. So why would your broker do this?


Understanding Stop Out Levels

If there are multiple active positions on a trader’s account when the level is reached, it is normal for the broker to close out the least beneficial ones first and leave the profitable ones open. However, if all of the positions are losing, they will all be closed.


As mentioned above, the levels at which a stop out will be enacted will vary from broker to broker and, therefore, it is important to know what levels are used by your broker. A large amount of traders fail to check this, and just rush into opening their accounts.


Some brokers may state in their trading conditions that their margin call is the same as their Forex stop out level. The unpleasant implication of this can be that no warnings are given in advance of your positions being closed once you reach this level.


Other brokers will have a separate margin call level and stop out level. For example, let’s say a broker has a stop out level of 10% and a margin call level of 20%. What this means is that when your equity gets to 20% of the used margin (which is the equity level necessary to sustain the position) the trader will then get an advance notice from the broker to take steps to prevent a stop out.


If nothing is done and your account equity drops to 10% of the used margin your positions will be closed automatically by the Forex broker. If you have such a broker, the margin call is not such a dreaded thing – it is a simple warning and with good risk management you will most likely prevent the level where your trades are closed from being reached. These brokers may suggest you deposit more money in order to meet the minimum margin requirement.

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