Margin call versus stop-out: two thresholds, two meanings

[Fairman]

Margin call versus stop-out: two thresholds, two meanings

Brokers publish a margin call level and a stop-out level, and plenty of traders treat them as the same thing. They're not.

The margin call level, say 100 percent, is a warning state. The platform may restrict opening new positions and often sends a notification. Nothing closes automatically.

The stop-out level, say 50 percent, is the point at which the system begins closing positions, usually starting with the one that has the largest loss. It does so at market, regardless of spread or slippage.

Variations make this messy. Some brokers close positions one at a time and recalculate after each. Others close everything in sequence. Some use equity-based levels, others use balance. On hedging accounts, the order of closure can be chosen by the broker.

Where it bites scalpers is the combination of high leverage and a brief spread spike. A level that holds comfortably in normal conditions can collapse for a few seconds when quotes widen, and the stop-out engine doesn't wait.

Reading the exact definition, including the order of closure, takes two minutes and answers a lot of "why was that trade closed" questions.

Which stop-out level and closure order does the current broker use?