Stop out level
Family III · Risk
Not to be confused with stop order, stop market order, margin level.
Stop out level is a risk-management threshold expressed as a percentage of margin level. When an account's margin level falls to or below this level, the broker's platform begins to close open positions, typically starting with the largest loser, to restore the account above the threshold. The exact stop out level is set by the broker and can range from 0% to 100% or more, depending on the broker and the regulatory framework.[1]
How the stop out level works
The stop out level is triggered when the margin level—calculated as equity divided by used margin, multiplied by 100—drops to the stop out percentage. For example, if a broker sets the stop out level at 50%, any margin level at or below 50% will cause the platform to liquidate positions until the margin level rises above 50% or all positions are closed.
This mechanism protects both the broker and the trader from losses exceeding the account balance. It is distinct from a margin call, which is a warning that occurs at a higher margin level.
Worked example
Variation across brokers and regulators
Stop out levels are not standardised. A broker may set a stop out level at 20%, 50%, or even 100%. Regulatory bodies in different jurisdictions may impose minimum or maximum stop out requirements. Traders should check the specific stop out level in their account agreement, as it directly affects when positions are closed.
Often confused with
- stop order
- A stop order is a pending order to buy or sell once a specified price is reached, whereas a stop out level is an account-wide threshold that triggers automatic liquidation; the visible sign is that a stop order is placed by the trader, while a stop out level is set by the broker.
- stop market order
- A stop market order is a type of stop order that becomes a market order when triggered, while a stop out level is a margin-based liquidation trigger; the visible sign is that a stop market order appears in the order list as a pending order, whereas a stop out level is a percentage in the account specifications.
- margin level
- Margin level is the ratio of equity to used margin expressed as a percentage, while the stop out level is the specific margin level at which the broker closes positions; the visible sign is that margin level is a calculated value shown in the trading platform, whereas the stop out level is a fixed setting in the broker's contract.
See also
References
- ↑ European Securities and Markets Authority, product intervention measures on contracts for differences sold to retail clients, 2018 — leverage caps by asset class, margin close-out and negative balance protection; carried into national rules across the EEA thereafter. Applies to clients classified as retail. Professional clients fall outside it.