Margin call and stop out
What you learn in 3 minutesA margin call is the level at which your broker warns you that your open positions have eaten most of your account. A stop out is the level at which the broker closes positions for you, without asking. Both are measured in margin level, a percentage, and both cost real money in naira. This lesson shows the two thresholds and the arithmetic that takes an account from one to the other.
From ₦217,000 to a stop out in 50 pips
| Step | Amount | Note |
|---|---|---|
| Account balance | ₦217,000 | money you deposited, converted from naira at the rate your broker quotes |
| Position opened | 1 standard lot EUR/USD | 100,000 units at about 1.0850 |
| Value of one pip | ₦10,850 | 10 units of the quote currency per pip, converted to naira at about ₦1,085 per unit |
| Margin held at 1:100 leverage | ₦108,500 | 1 per cent of the position's notional value |
| Free margin after opening | ₦108,500 | ₦217,000 equity minus ₦108,500 used margin |
| Margin level at opening | 200 per cent | equity ₦217,000 divided by used margin ₦108,500, times 100 |
| Loss that brings margin level to 100 per cent | ₦108,500 | equity must fall to equal used margin, so the loss equals the free margin |
| That loss in pips | 10 pips | ₦108,500 divided by ₦10,850 per pip |
| Margin call at 100 per cent | equity ₦108,500 | the broker warns you here; it does not close anything yet |
| Loss that brings margin level to 50 per cent | ₦54,250 | equity must fall to half of used margin, so a further loss of ₦54,250 |
| That further loss in pips | 5 pips | ₦54,250 divided by ₦10,850 per pip |
| Stop out at 50 per cent | equity ₦54,250 | the broker closes positions to bring the account back above its threshold |
Your broker may round these figures, apply a different stop out level, or charge a commission or swap on top. The exact thresholds are in your broker's client agreement, and they vary between brokers.
The mistake people make here
Many people think a margin call is a request they can ignore, and that the broker will wait. It is not a request. The stop out can arrive minutes later, and the broker chooses which positions to close, usually the largest losing one first, not the one you would have chosen. The fix is to know your broker's two thresholds before you open a position, and to set your own exit while the margin level is still well above 100 per cent.Check yourself
You have ₦150,000 in your account and open 1 standard lot of EUR/USD at 1.0850 with 1:100 leverage. One pip is worth ₦10,850. What is your margin level at opening?
Used margin is 1 per cent of the position, or ₦108,500. Margin level is ₦150,000 divided by ₦108,500, times 100, which is about 138 per cent.
Using the same figures, how many pips of loss take you from 138 per cent to a 100 per cent margin call?
Equity must fall from ₦150,000 to ₦108,500, a loss of ₦41,500. Divide by ₦10,850 per pip: about 4 pips.