Stop-Out Level, The Line You Never Want to Test

[Fairman]

The smoke alarm comparison works, and I'd add that the alarm goes off later than most people think. The stop-out level is usually a margin level of 20 to 50 percent, but long before that you've already lost the thing that matters, which is the ability to choose what to close.

Quick example with numbers. A 2,000 dollar account with 1:100 leverage opens 1 lot of EURUSD, needing about 1,080 dollars of margin. Free margin is under 1,000, margin level around 185 percent. Price moves 40 pips against, losing 400 dollars, equity is 1,600, margin level about 148 percent. Still far from a stop-out, and that's the trap, since it feels fine. Another 60 pips takes equity to 1,000 and the margin level under 100.

The only reliable protection I've found is the one in the post, 1 percent risk and a real stop every time. On that account, that's 20 dollars, so 0.2 lots with a 10 pip stop. The stop-out level then becomes irrelevant, because I'd be out long before.

I also look at margin level as a second check. If it ever shows below 500 percent with a few trades open, I'm over-exposed.

Have you been close to a stop-out yourself? And do you know whether your broker closes the largest loser first or the newest position?