Margin close-out

A margin close-out, often called a stop-out, is the broker closing your positions without asking because your account no longer has enough equity to support them. It is triggered by your margin level, the ratio of equity to used margin.

For retail clients in the EU, ESMA's 2018 product intervention measures made a 50% close-out rule mandatory: once equity falls to half of the margin required for open CFD positions, the broker must close one or more of them. The UK's FCA applies the same rule. Brokers can close out earlier (at a higher margin level) but not later. Outside these regions, stop-out levels vary and can be much lower.

Example

Illustrative figures: a 4,000-dollar account holds positions needing 2,000 dollars of margin. Margin level is 200%. If losses reach 3,000 dollars, equity is 1,000 dollars and margin level is exactly 50%. The broker closes positions, usually the one with the largest loss first, until margin level is back above the threshold or nothing is left open.

Practical notes

• A close-out locks in the loss. Prices may recover afterwards, but your positions are gone.
• In a fast market or over a weekend gap, positions can be closed well below 50%. Negative balance protection means a retail client in the EU or UK cannot end up owing the broker money, but the account can still be emptied.
• The close-out is a last line of defence for the broker and for you, not a risk-management plan. A sensibly placed stop-loss and a modest position size should mean you never get near it.

More in our guide to margin calls and stop-outs.