Almost every retail trader meets the words "margin call" early, and many misunderstand them. A margin call is not a dramatic phone call from your broker. It is an automated rule applied to your account, and the details differ between brokers. Understanding the mechanics lets you design your trading so that you never find out how your broker's version feels. This guide builds on our explanation of lots, leverage and margin.
The four numbers on your platform
Most trading platforms show the same few figures, sometimes under slightly different names:
- Balance: your deposited money plus realised profit and loss.
- Equity: balance plus the floating profit or loss on open positions. This changes every tick.
- Used margin: the deposit the broker sets aside to keep your open positions.
- Free margin: equity minus used margin. This is what is available to absorb losses or open new positions.
The figure that triggers action is margin level, usually calculated as equity divided by used margin, expressed as a percentage.
An illustrative example
Suppose an account holds 5,000 in equity and the broker requires 2,000 of used margin for open positions. Margin level is 5,000 / 2,000 = 250%. If floating losses reduce equity to 2,000, margin level falls to 100%: there is no free margin left. The numbers here are illustrative only; required margin depends on your leverage, position size and the broker's rules.
Margin call versus stop-out
These are two distinct thresholds, and brokers set them differently:
- Margin call level: a warning threshold, commonly somewhere around 100%, though some brokers use higher figures. At this point you may get a notification or be blocked from opening new trades. Nothing is necessarily closed yet.
- Stop-out level: the point at which the platform starts closing positions automatically, commonly somewhere between 20% and 50% margin level. Often the position with the largest floating loss is closed first, then the next, until margin level recovers above the threshold.
Your broker's client agreement states the exact levels and the closing sequence. Read it before funding an account; our broker due diligence checklist includes this as a standard item.
Why a stop-out can be worse than you calculated
Many traders compute the stop-out price on a calculator and assume it is a guarantee. Several things can make reality harsher:
- Gaps and slippage. If price jumps through your stop-out level, positions close at the next available price, which may be considerably worse. Weekend gaps and data releases are the classic cases. See spreads and slippage.
- Widening spreads. Spreads often widen around rollover and major news. Floating loss is typically marked at the side of the spread that is unfavourable to you, so equity can drop without the chart moving much.
- Correlated positions. Three "different" trades that are all effectively short the US dollar will lose together. See currency correlation.
- Margin requirement changes. Brokers can raise required margin ahead of events or in volatile conditions, which lowers margin level even if price has not moved against you.
Negative balance: check the policy
In a fast gap, losses can exceed account equity. Whether you owe the difference depends on the broker's negative balance policy and the regulatory regime you are under. Some brokers contractually guarantee you cannot lose more than your deposit; others do not. This is a question to get answered in writing, not to discover afterwards.
The real defence is risk per trade, not margin level
Margin level is a symptom. The cause of nearly every forced liquidation is that position sizes were too large relative to the account. If each trade risks a small fixed fraction of equity, and you cap total open risk, the account is nowhere near stop-out even in a bad run of losses. The method is covered in position sizing and risk per trade. Compare the two framings:
- Margin-based thinking: "I have free margin, so I can open another trade."
- Risk-based thinking: "My open trades already risk a combined 3% of equity if every stop is hit; I will not add a fourth."
The first treats the broker's limit as your limit. The second sets a limit tighter than the broker's, which is the whole point.
Practical habits
- Keep margin level high. Many traders choose a personal floor, for example never letting used margin exceed 10 to 20 percent of equity. Pick a number that fits your own plan.
- Use stop-loss orders that live on the server. A stop that sits on the broker's server works even if your computer or connection fails. Know that stops are not guaranteed to fill at the price; see order types.
- Reduce exposure before known events and weekends if gap risk is larger than you want to carry.
- Do not add to losers to "average down" using free margin. It raises exposure exactly when the market is proving you wrong.
- Keep a buffer in the account. Do not deposit the minimum and run maximum leverage; the buffer is what survives an unexpected move.
- Test on a demo account first to watch margin level move as price moves, using the same position sizes you plan to trade live.
Questions to ask your broker
- What are the exact margin call and stop-out levels?
- In what order are positions closed?
- Is there a negative balance protection, and is it in the contract?
- Can required margin change without notice around events?
- How is margin calculated for hedged (offsetting) positions?
Summary
A margin call is a warning and a stop-out is forced closure, with thresholds set by your broker. Gaps, spreads and correlated positions can make the real outcome worse than a simple calculation suggests. The dependable way to avoid either is small positions and a low total risk, long before margin level becomes something you watch.
Educational content only, not investment advice. Examples are illustrative and use made-up figures. Leveraged trading carries a high risk of loss.