In forex trading, the Stop Out is an automatic tool designed to protect traders from potential losses during unexpected market conditions, especially during periods of high volatility. It prevents the account from falling into negative balance by automatically closing the least profitable trades once the account's equity reaches a certain percentage of the required margin. This mechanism is critical for maintaining account stability and avoiding severe losses.
The Stop Out process begins when the margin level of a trader’s account balance falls below a predefined amount, which for JustMarkets is set at 20% of the margin level. When this level is reached, the platform will automatically begin closing the open orders, starting with the least profitable, to free up margin and prevent further losses.
This automatic procedure applies to both buy and sell orders, and it is executed in the same way, regardless of the order type. As soon as the margin level hits the Stop Out level, the system will close positions in sequence until the margin level is restored above the 20%.
The margin level is the ratio of a trader's equity to the used margin, expressed as a percentage. It is an important indicator that helps determine whether you have sufficient funds in your account to maintain open positions. The margin level is calculated as follows:
Margin Level = (Equity / Used Margin) × 100
For example, if a trader opens a 1.0 lot position for XAUUSD with a used margin of $75 and their equity is $750, the margin level would be:
Margin Level = ( 750 / 75) × 100 = 1,000%
If the margin level falls too low (below 20% for JustMarkets), the Stop Out mechanism will begin closing positions.
For more information on how to calculate the margin for individual trades, please refer to the article: "How to Calculate the Margin Per Order?"
Example 1: Trading on a Standard Account with 1:2000 Leverage and $1,000 Balance
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First Order: 0.50 lots, Buy order for EURUSD.
- Open price: 1.10193.
- Margin required: $27.55.
- Spread: 8 points (equity drops by $4 after the order is opened).
- Equity after order: $1,000 - $4 = $996.
- Margin Level: 996 / 27.55 × 100 = 3,615.24%.
- Now, suppose the trade generates a profit of $50:
- New Equity: $1,046.
- New Margin Level: 1,046 / 27.55 × 100 = 3,796.73%.
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Second Order: 1.00 lots, Buy order for USDCAD.
- Open price: 1.37115.
- Margin required: $50.
- Spread: 15 points (equity drops by $10.93 after the order is opened).
- Equity after order: $1,046 - $10.93 = $1,035.07.
- New Margin Level: 1,035.07 / 77.55 × 100 = 1,334.71%.
Now, let's calculate when Stop Out will occur:
Stop Out level= (20 × 77.55) / 100 = 15.51 USD.
If the equity drops to $15.51, the Stop Out will be triggered, and the least profitable order will be closed. Suppose the second order results in a loss of -$1,019.56, bringing equity down to $15.51, in this case the second order (USDCAD) will be closed, and the margin level will be recalculated to:
- New Margin Level = 15.51 / 27.55 × 100 = 56.30%.
The profitable first order for EURUSD remains open, and the margin level is now restored above the Stop Out level.