forex-scalping.com

A beginner question came up in chat and I realised I didn't have a clean answer myself, so here it is worked through.

Most brokers have two levels:

• Margin call: a warning, often at 100% margin level (equity = used margin).
• Stop-out: positions get closed, often at 50% or lower.

On gold with high leverage, it's surprisingly easy to get close. Example: $2,000 account, 1:100 leverage, gold at $2,600, 0.5 lots (50 oz).

• Position value: about $130,000. Margin used: about $1,300.
• Margin level at the start: 2000 / 1300 ≈ 154%.
• Margin call at 100% means equity falls to $1,300, so a loss of $700, which is a $14 move against you.
• Stop-out at 50% means equity $650, so a $27 move.

A $14 move on gold during news isn't unusual at all. And the margin call doesn't protect you; it's just a warning.

My own rule: margin level never below 500% at entry, and my own stop always far before any broker-level event. If I can't get that with my position size, the position is too big.

What buffer do others keep? Does anyone use margin level as part of their risk rules?

A position is safely within its margin. Then rollover arrives, the spread widens to 20 pips, and the account's equity drops sharply, since the position is valued at the bid or ask, whichever is less favorable.

If the margin level was low, the drop can trigger a stop-out, closing positions at the worst moment, at wide-spread prices. The account loses money to a quote that nobody could trade on.

This happens to accounts with high leverage and little buffer. A margin level of 110 percent seems fine at noon and is fatal at 5pm.

Not every broker handles it the same way. Some freeze the stop-out check during the rollover window. Others don't, and they close positions without hesitation.

The detail to find in the terms is whether stop-outs are suspended during extended spreads, and how the margin is computed during that time.

A rough protective measure is to keep the margin level well above the stop-out threshold before 5pm New York, or close positions beforehand. A low buffer plus a rollover spread is a known recipe for an unnecessary loss.

Does the broker used here suspend stop-outs during rollover, and has anyone tested it?