Margin call and stop-out: what happens when an account runs out of margin

A margin call is a warning from your broker that your account equity has fallen close to the margin needed to keep your positions open. A stop-out is what happens if it keeps falling: the broker starts closing your positions automatically, usually the biggest loser first, until the account is back above the required level. For retail clients in the EU, brokers must close positions once equity falls to 50% of the margin required.

The four numbers on your account screen

Every trading platform shows a small block of figures at the bottom of the terminal. They decide everything in this guide, so it is worth being precise about each.

• Balance. The cash in the account from deposits, withdrawals and closed trades. It does not change while trades are open.
• Equity. Balance plus or minus the floating profit or loss on open positions, including accumulated swaps. This is what the account would be worth if you closed everything right now.
• Used margin (or just "margin"). The total deposit the broker is holding against your open positions.
• Free margin. Equity minus used margin. This is what is available to open new positions or absorb further losses.

And one ratio that ties them together:

Margin level = equity ÷ used margin × 100%

If your equity is $5,000 and your used margin is $1,000, your margin level is 500%. If equity falls to $1,000, margin level is 100%. Margin calls and stop-outs are both triggered by margin level, not by balance, not by free margin and not by the loss on any one trade.

With no positions open, used margin is zero and margin level is not defined, which is why many platforms show it blank.

Where margin comes from

Margin is set by the size of the position and the leverage allowed on the instrument. Under the ESMA rules that apply to retail clients in the EU, maximum leverage is 30:1 on major currency pairs, 20:1 on non-major pairs, gold and major indices, 10:1 on commodities other than gold and on non-major indices, 5:1 on individual equities and 2:1 on cryptocurrencies. The UK applies the same limits through the FCA. Expressed as margin, 30:1 means 3.33% of the position's value; 20:1 means 5%.

So one standard lot of EUR/USD, 100,000 euros, with EUR/USD at 1.0800, is worth $108,000. At 30:1 the margin required is $108,000 ÷ 30 = $3,600. Our leverage and margin guide covers the basics, and the guide to ESMA leverage limits and negative balance protection covers the rules and how they differ for professional clients and in other regions.

Two details that catch people out:

• Margin on a forex position is usually calculated in the base currency and converted to your account currency at the current rate, so it changes slightly as prices move.
• Some brokers raise margin requirements temporarily around high-risk events, weekends or elections. Check the broker's notices and your platform's contract specification.

Margin call vs stop-out

These two terms are often used interchangeably, but they are different things.

Margin call

A margin call is a warning. When margin level falls to the broker's margin call threshold, the platform alerts you, often by colouring the account line red and sending an email or push notification. Nothing is closed. The threshold is set by the broker and is commonly 100%, though some brokers use higher or lower levels. At 100%, your equity exactly equals your used margin and your free margin is zero, so you cannot open new positions.

The term comes from traditional brokerage, where the broker would literally call you to ask for more money. Today it is an automated alert, and in fast markets there may be very little time between the warning and the next stage.

Stop-out

A stop-out is the forced closure of positions. When margin level falls to the stop-out threshold, the broker's system starts closing positions at market prices. For retail clients of EU-regulated brokers, ESMA's rules require a margin close-out when the account's equity falls to 50% of the initial margin required for the open positions. That is equivalent to a 50% margin level, and it applies to the whole account rather than to each position separately. Brokers may set a higher stop-out level, but not a lower one, for EU retail clients. Offshore entities are not bound by this rule and may use lower levels, which leaves more room for losses before anything is closed.

Most platforms close the position with the largest floating loss first, then recheck the margin level, and continue one position at a time until the level is back above the threshold. The exact order is set out in the broker's terms and can differ, so read them.

Worked example 1: one large position

Illustrative prices throughout.

You have a US dollar account with a balance of $5,000. You buy 1 standard lot of EUR/USD at 1.0800. One pip is worth $10.

• Used margin: $108,000 ÷ 30 = $3,600
• Equity: $5,000 (no floating P&L yet)
• Free margin: $5,000 − $3,600 = $1,400
• Margin level: $5,000 ÷ $3,600 = 139%

Already, the account is close to trouble. Suppose the broker's margin call level is 100% and the stop-out level is 50%.

Margin call. Margin level reaches 100% when equity equals used margin. As a first approximation, equity has to fall by $1,400, which is 140 pips. In fact the margin requirement also shrinks slightly as the euro's dollar price falls, so the exact trigger is a little lower, at about 1.0655, roughly 145 pips below entry.

Stop-out. Margin level reaches 50% when equity is half the used margin. Working it through with the shrinking margin included, that happens at about 1.0475, roughly 325 pips below entry. The loss at that point is about $3,250, or 65% of the account.

325 pips may sound a lot, but EUR/USD has often moved that far within a few weeks, and on more volatile pairs a move of that size can happen in days. And the account was never meant to lose 65% on one trade.

The same trade, sized for risk

Now the same account and the same trade, but sized using the position sizing method: risk 1% of $5,000, which is $50, with a 25-pip stop.

• Size: $50 ÷ (25 × $10) = 0.20 lots
• Used margin: $21,600 ÷ 30 = $720
• Margin level: $5,000 ÷ $720 = 694%

If the stop is hit, the loss is $50 and the margin level barely moves. For this account to reach a 50% stop-out with a 0.20-lot position, EUR/USD would have to fall more than 2,000 pips, a move far outside anything a 25-pip stop would allow to happen.

That is the most important point in this guide. A stop-out is what happens when your position size was set by the leverage on offer rather than by the risk you meant to take. With a stop loss on every trade and sizes calculated from risk, the stop-out level should be an irrelevance.

Worked example 2: several positions and the order of closure

Margin level is calculated across the whole account, which means positions affect each other.

Illustrative figures. A $3,500 account holds:

• 0.5 lots long EUR/USD at 1.0800. Margin: $54,000 ÷ 30 = $1,800. Pip value: $5.
• 0.3 lots long GBP/USD at 1.2700. Margin: $38,100 ÷ 30 = $1,270. Pip value: $3.

Total used margin: $3,070. Margin level: $3,500 ÷ $3,070 = 114%.

Both positions are long against the US dollar, so they are likely to lose together. The trader thinks of them as two trades. The account treats them as one large dollar position.

The dollar strengthens. If both pairs fall about 54 pips, the combined loss is about 54 × ($5 + $3) = $430, equity drops to $3,070 and the margin level reaches 100% (a pip or two later once the slightly shrinking margin is included). Margin call.

The dollar keeps rising. Equity has to fall to half of used margin, about $1,535, for a stop-out. That is a further loss of roughly $1,535, or about 190 more pips in each pair at $8 a pip combined. In practice the falling prices also reduce the margin required, so the real stop-out comes slightly later, but the scale is right: a move of roughly 250 pips in total.

At the stop-out, the broker closes the position with the largest loss first: EUR/USD, down about $1,250. That releases about $1,750 of margin. With only the GBP/USD position left, using about $1,250 of margin, and equity at around $1,500, the margin level is back at about 120% and the closing stops. The account has lost well over half its value, and is still holding a losing position.

The lessons: correlated positions consume margin together, a margin call gives less warning than it seems, and the stop-out does not close everything, only enough to restore the level. You are often left with the remnants of the trade that caused the problem.

Gaps, slippage and negative balances

A stop-out closes positions at market prices. If the market moves smoothly, the closure happens close to the stop-out level. If the market gaps, it does not.

Over a weekend, or when a central bank or government makes an unexpected announcement, price can jump straight past the stop-out level. The positions are closed at the first available price, which can be far worse, and in extreme cases the account's equity can go below zero. The slippage guide explains how gaps happen and gives the best-known forex example, the Swiss franc in January 2015.

For retail clients of EU- and UK-regulated brokers, negative balance protection means the broker must absorb any amount below zero, so you cannot lose more than the money in your trading account. Professional clients are generally not covered, and accounts with offshore entities may or may not offer it, so check the terms. Our guide on how to check a broker licence explains how to confirm which entity your account is with.

Swaps, costs and slow bleeds

Margin level does not only fall because of price. Overnight financing charges, explained in the swap and overnight financing guide, are deducted from equity day after day. On a large position held for weeks, swaps can steadily erode equity until a modest move in price is enough to trigger a margin call. Commissions and spread costs on opening new positions have the same effect on a smaller scale.

This is particularly relevant to CFD positions held for long periods on indices, commodities or shares. The CFD guide covers how financing works on those products.

How to stay well clear of a margin call

A margin call is not something to manage; it is something to avoid by design.

1. Size every trade from risk, not from margin. Decide the money at risk per trade, set the stop at a meaningful level (see where to put a stop loss), and calculate the size. The margin follows.
2. Use a stop loss on every position. A stop closes a trade long before a stop-out would.
3. Watch total exposure, not just individual trades. Several positions on the same currency are one large position.
4. Keep margin level high. If your margin level is regularly below a few hundred per cent, your positions are probably too large for the account.
5. Do not add money to rescue a losing position. Depositing to avoid a stop-out usually just increases the eventual loss. If the trade was wrong, close it.
6. Check margin changes before weekends and events. A broker raising margin requirements can lower your margin level overnight without any price move.
7. Know your broker's levels. The margin call and stop-out thresholds are in the account terms or the platform's account information. Write them down.

Common mistakes

• Treating free margin as spare money. Free margin is the buffer between you and a stop-out, not an invitation to open more positions.
• Confusing margin with risk. The margin on a trade is not the most you can lose. The loss is based on the full position size.
• Assuming the stop-out is a stop loss. It closes positions at whatever price is available when the threshold is hit, and only as many as needed. It is a last-resort safety mechanism for the broker and the client, not a risk-management plan.
• Ignoring correlation. Positions in the same direction on the same currency fail together.
• Choosing an offshore account for higher leverage. Higher leverage and lower stop-out levels mean larger potential losses before anything is closed, and often fewer protections.

The broader context matters too. Most retail CFD accounts lose money; brokers' own disclosures show this, and leverage magnifies losses. Our guide on why most retail CFD traders lose and our risk warning set out the detail. For definitions of any of the terms used here, see the glossary.

Frequently asked questions

What is the difference between a margin call and a stop-out?

A margin call is a warning that your margin level has fallen to a threshold set by the broker, commonly 100%. A stop-out is the automatic closure of positions when margin level falls further, to the stop-out threshold. For EU retail clients the stop-out must happen by 50%.

How is margin level calculated?

Margin level is equity divided by used margin, multiplied by 100. Equity is your balance plus or minus floating profit and loss. If your equity is $2,000 and your positions use $1,000 of margin, your margin level is 200%.

What happens to my positions at a stop-out?

The broker's system closes positions at market prices, usually starting with the one showing the largest loss, and rechecks the margin level after each closure. It stops once the level is back above the threshold, so you may be left with some positions still open.

Can I lose more than my deposit?

If you are a retail client of an EU- or UK-regulated broker, negative balance protection means your losses are limited to the funds in your trading account. Professional clients and clients of some offshore entities may not have this protection, in which case a large gap could leave you owing the broker money.

What is the ESMA 50% margin close-out rule?

It is one of the measures ESMA introduced for retail CFD clients in 2018. Brokers must close out a retail client's positions when the account's equity falls to 50% of the initial margin required for those positions. It is assessed across the whole account, and brokers may choose a higher level.

Should I deposit more money to avoid a stop-out?

Usually not. Adding funds to keep a losing position open increases the amount at risk on a trade that is already going against you. The better response is to reduce or close positions, and to size future trades so that margin level never gets close to the threshold.