Margin call and stop out
What you learn in 3 minutesThis lesson shows the two lines a broker watches on your account: the margin call level and the stop out level. If your account balance falls to the margin call level, the broker warns you. If it falls further to the stop out level, the broker closes positions for you, starting with the one losing the most money.
When ₱20,000 becomes a margin call
| Step | Amount | Note |
|---|---|---|
| Account balance | ₱20,000 | Your cash, converted from pesos at the rate your broker uses. |
| Position opened | 0.10 standard lots on EUR/USD at 1.0850 | 0.10 lots means 10,000 units of EUR/USD. One pip on one standard lot is 10 units of the quote currency, so one pip on 0.10 lots is 1 unit of the quote currency. |
| Required margin | ₱10,000 | If your broker requires 5% margin, the margin is 5% of the position value. The position value is 10,000 × 1.0850 = 10,850 units of the quote currency, converted to pesos at the current rate. Here we assume that conversion gives ₱10,000. |
| Margin level at open | 200% | Equity ₱20,000 ÷ required margin ₱10,000 × 100. |
| Margin call level | 100% | When equity falls to ₱10,000, the broker warns you. Equity = balance + floating profit or loss. So the floating loss must be ₱10,000. |
| Pips to margin call | 10,000 pips | A floating loss of ₱10,000 divided by ₱1 per pip on 0.10 lots. This is a very large move, so a 0.10 lot position on a ₱20,000 account is not close to a margin call from a small move. |
| Stop out level | 50% | When equity falls to 50% of required margin, the broker closes positions. 50% of ₱10,000 is ₱5,000. |
| Pips to stop out | 15,000 pips | A floating loss of ₱15,000 divided by ₱1 per pip on 0.10 lots. |
| What the broker closes first | The position with the largest floating loss | Brokers usually close the worst-performing position first, then the next worst, until the margin level is back above the stop out level. The order can vary between brokers. |
Your broker may round pip values, charge a spread or commission, and use a different conversion rate for the quote currency. The margin requirement and the stop out level also vary between brokers. Check your own broker's contract specifications.
The mistake people make here
Many people think a margin call means the broker will call them on the phone. It does not. It is an automatic warning on your platform. The real mistake is ignoring that warning and hoping the market turns. Instead, check your margin level as soon as the warning appears, and decide whether to add funds, reduce the position size, or close the trade yourself. If you do nothing, the broker will close positions for you at the stop out level, and you may lose more than you planned.Check yourself
You have ₱30,000 equity and a required margin of ₱15,000. What is your margin level?
Margin level = equity ÷ required margin × 100 = ₱30,000 ÷ ₱15,000 × 100 = 200%.
Using the same account, if the margin call level is 100%, what equity triggers the warning?
Equity must fall to 100% of required margin, so equity = ₱15,000. The floating loss needed is ₱30,000 − ₱15,000 = ₱15,000.
If one pip on your position is worth ₱2, how many pips of loss take you from ₱30,000 equity to the ₱15,000 margin call?
Loss needed = ₱15,000. Pips = ₱15,000 ÷ ₱2 per pip = 7,500 pips.