<p>A stop out is an automatic liquidation of a trader’s open positions when the account’s <a href="/NewSite/encyclopedia/margin-level/" class="ency-link">margin level</a> drops below a broker‑defined threshold. This safety mechanism protects both the trader and the broker from incurring losses that exceed the available collateral. When the stop out level is reached, the trading platform begins closing the largest losing trades first, continuing until the margin level rises back above the limit. Understanding how a stop out works helps traders manage risk and avoid unexpected position closures.</p>

<h2>How It Works</h2>
<p>The margin level is calculated as <strong>equity</strong> divided by <strong>used margin</strong>, multiplied by 100. Equity equals the account balance plus or minus unrealized profit or loss on open positions. Used margin is the amount of capital locked to maintain those positions. Most brokers set a stop out level between 20% and 50%; when the margin level falls to or below this percentage, the platform triggers a stop out. On platforms such as <strong>MetaTrader 5</strong>, the system checks the margin level in real time. If the level is insufficient, it starts closing positions, typically beginning with the trade that has the greatest negative unrealized profit/loss, to free margin. The process repeats until the margin level climbs back above the stop out threshold or no positions remain.</p>

<h2>Why It Matters for Traders</h2>
<p>A stop out protects traders from a negative balance, which could otherwise require depositing additional funds to cover losses. It also serves as a clear signal that risk management parameters, such as position size or leverage, need adjustment. By monitoring margin level regularly, traders can anticipate a potential stop out and take preventive actions, like tightening stop‑loss orders or reducing exposure. Knowing the broker’s specific stop out percentage allows traders to set appropriate alerts and maintain sufficient free margin to keep trades open during normal market fluctuations.</p>

<h2>Example</h2>
<p>Consider an account with a balance of $10,000 trading at 1:100 leverage. A trader opens one lot of EUR/USD, requiring $1,000 of used margin. If the market moves against the position and unrealized loss reaches $7,000, equity becomes $3,000 ($10,000 balance – $7,000 loss). Margin level = ($3,000 / $1,000) × 100 = 30%. Assuming the broker’s stop out level is 20%, the position remains open. If the loss increases to $8,500, equity drops to $1,500 and margin level = ($1,500 / $1,000) × 100 = 15%, which is below the 20% stop out threshold. The platform then begins closing the trade to restore adequate margin.</p>
<table>
    <tr><th>Item</th><th>Amount (USD)</th></tr>
    <tr><td>Account Balance</td><td>10,000</td></tr>
    <tr><td>Used Margin (1 lot)</td><td>1,000</td></tr>
    <tr><td>Unrealized Loss</td><td>8,500</td></tr>
    <tr><td>Equity</td><td>1,500</td></tr>
    <tr><td>Margin Level</td><td>15%</td></tr>
    <tr><td>Stop Out Level (Broker)</td><td>20%</td></tr>
</table>

<h2>Key Takeaways</h2>
<ul>
    <li>A stop out automatically closes positions when margin level falls below the broker’s threshold.</li>
    <li>It protects accounts from negative balances and encourages disciplined risk management.</li>
    <li>Monitoring equity, used margin, and leverage helps traders avoid unexpected stop outs.</li>
    <li>Understanding the specific stop out percentage set by your broker is essential for effective trading planning.</li>
</ul>