Stop Out in Forex Trading: What It Is and How to Avoid It

In forex trading, “stop out” is the point where your broker automatically closes one or more of your losing positions to prevent your account balance from going negative. It’s triggered when your margin level falls below a certain percentage set by the broker. Understanding how stop out works is crucial, because it can mean the difference between protecting your capital and wiping out your trading account.

What Does “Stop Out” Mean in Forex?

A Stop Out in forex is the point where the broker automatically begins closing losing trades. The trigger comes once account equity drops too low to support open positions. The system liquidates trades starting from the largest loss, which frees margin to protect the account from falling into a negative balance.

Okay, let’s make it simpler to grasp. 

Suppose you have $1,000 in your account and you open trades that require $500 margin.

If the market moves against you and your equity falls to $250, your broker steps in. The margin level has dropped to 50% and the system can’t let you run further losses. You’d see how your platform starts closing trades, beginning with the biggest losing one. Each closure frees some margin and gives the account breathing space. That forced closure is what we call a Stop Out.

What is a Stop Out Level in Forex?

Now you need to understand that the stop out has two sides. One side is the level your broker sets, expressed as a margin percentage. The other side is the action that takes place once your equity falls to that level. 

The stop out level shows you the exact point of risk. The action is the automatic closure of losing positions to free margin.

For example, your account balance is $2,000 and you use $1,000 as margin. Your equity drops to $500 because of open losses. Your margin level now equals:

Margin Level=1000500​×100=50%

What does it mean exactly? 

See, if your broker has a stop out set at 50%, that’s the level. The moment your equity hits that level, the platform starts closing your worst losing trades automatically. That is the action.

How is Stop Out Calculated?

Stop out is calculated through the margin level formula:

Margin Level = (Equity ÷ Used Margin) × 100

• Equity = your balance plus floating profit/loss
• Used Margin = the amount locked to keep trades open

Once the margin level hits the broker’s stop out percentage, liquidation begins. For example:

• Account Balance: $1,000
• Used Margin: $500
• Floating Loss: –$600
• Equity = $1,000 – $600 = $400
• Margin Level = $400 ÷ $500 × 100 = 80%

If the broker’s stop out is set at 50%, no trades close yet. But if equity falls to $250, the margin level becomes 50% ($250 ÷ $500 × 100). At that exact point, the broker starts closing trades.

Key Insight: The broker does not wait for your balance to hit zero. Stop out triggers as soon as equity divided by margin equals the set threshold.

What is an Example of a Stop Out Level?

You must understand that different brokers enforce different stop out levels. Here’s how each looks in practice, if we assume that you have $1,000 balance and use $500 margin.

• Babypips – Stop Out at 20%
  If equity drops to $100, margin level equals 20%. The platform closes your losing trades automatically.
• Axiory – Stop Out at 50%
  If equity falls to $250, margin level equals 50%. The system starts liquidating your worst trades.
• MondFx – Stop Out at 20% (Leverage Focus)
  Equity must fall to $100 before stop out hits. This works with their leverage-heavy trading model.
• FXTM – Stop Out at 50% (Margin Call at 80%)
  At $400 equity, you get a margin call (80%). If losses continue and equity falls to $250, stop out triggers and trades close.
• Pepperstone – Stop Out at 50% (Retail) and 20% (Pro)
  A retail account triggers stop out at $250 equity (50%). A pro account has more breathing room, triggering at $100 equity (20%).
• JustMarkets – Broker-Defined Stop Out
  The percentage depends on account type. For a 30% stop out, trades would close at $150 equity

Margin Call vs Stop Out: What’s the Difference?

This is a very important aspect to understand, because you’ll face both “margin call” and “stop out” at some point in your trading journey. One is a warning, and the other is an execution.

• Margin Call
  Your broker sends a signal once your margin level drops to a set point, usually around 80% or 100%. You still have control over trades, but the broker is telling you to act. You can add more funds or close some positions yourself. For example, your balance is $1,000 and $500 is locked as margin, a margin call at 80% triggers once your equity falls to $400.
• Stop Out
  Your broker takes action once your equity falls further to the stop out level. The platform begins closing losing positions automatically. You lose control because the broker must protect margin. For example, in the same account, a stop out at 50% would trigger once equity reaches $250.

So, margin call is your final chance to act, while stop out is the broker’s final action to protect the account.

Why Do Stop Outs Happen in Forex?

Stop outs happen because margin trading runs on borrowed leverage. The broker has to protect both the money you put in and the credit they extend to you. If equity drains too low, they cannot risk you falling into negative balance, so they step in.

Here’s exactly how stop outs occur:

• You deposit funds and open trades. A chunk of that balance becomes locked as margin.
• Price starts moving against you. Equity begins to sink.
• Your margin level (Equity ÷ Margin × 100) keeps dropping closer to the broker’s danger zone.
• At the set stop out percentage, the platform takes over. It starts closing trades automatically, beginning with the largest losing position.
• Each closure frees some margin, but if losses keep eating equity, more trades will close until your account stabilises above the stop out level. This forced liquidation is often the final stop out event in a larger drawdown cycle, marking the point where equity collapse turns irreversible without new funding.

How to Avoid Stop Out in Forex Trading?

To protect your account and keep trading without interruptions, here are practical ways to avoid a stop out in forex trading:

• Use lower leverage so each trade requires less margin.
• Keep free margin by avoiding overloading your account with multiple positions.
• Set a protective stop loss on every trade to control risk before equity drains and prevent forced liquidation.
• Monitor margin level regularly on your trading platform.
• Add extra funds if your equity begins to approach margin call territory.
• Diversify trade sizes instead of going all-in on a single position.
• Trade smaller lot sizes so losses impact equity more slowly.
• Avoid holding losing trades too long in hope of reversal.
• Stay aware of high-volatility events like news releases that can spike losses.

Final Thoughts

Stop out means the automatic closure of trades once equity falls too low compared to used margin. The stop out level is the percentage set by the broker that marks the trigger point for this action. Together, they define the boundary that protects your account from falling into debt.

The summary is simple: stop out is the event, and stop out level is the threshold. Both are essential for risk control in forex. This makes risk management the overarching framework, where stop out levels are just one of the critical protective tools.

It is best if you use a rule of thumb to stay well above danger. Keep your margin level above 300% to give trades enough room and to avoid margin calls or forced closures. That way, you remain in control of your trading, instead of the system taking control for you.

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