Margin call and stop out
You will also learn the order in which a broker closes positions, and why the largest loss is usually closed first.
The two thresholds a broker watches
A broker tracks two numbers on your account. The first is the margin call level. The second is the stop out level. Both are percentages of the margin you have used, not of your balance. The margin call is a warning. The stop out is an action. The broker does not ask before it acts at the stop out.
Margin is the deposit locked when you open a position. If you open one standard lot of USD/INR and your broker requires ₹20,000 as margin, that ₹20,000 is no longer free. Your equity is your balance plus or minus any running profit or loss. Free margin is equity minus used margin. The broker watches equity against used margin.
Suppose the margin call level is 100 per cent and the stop out level is 50 per cent. At 100 per cent, equity equals used margin. At 50 per cent, equity is half of used margin. A margin call at 100 per cent means your free margin has reached zero. A stop out at 50 per cent means your equity has fallen to half the margin you locked. These levels vary between brokers, so check your own platform.
How price movement turns into an equity fall
On one standard lot of USD/INR, one pip is worth ₹10. That figure is fixed by the lot size, not by the price level. If the price moves against you by 100 pips, you lose ₹1,000. If it moves by 1,000 pips, you lose ₹10,000. The pip value does not change as the price moves, so the loss grows in a straight line with the number of pips.
Start with ₹40,000 balance and use ₹20,000 margin. Your equity begins at ₹40,000. Free margin is ₹20,000. A margin call at 100 per cent arrives when equity falls to ₹20,000. That is a loss of ₹20,000 from the start. At ₹10 per pip, that is 2,000 pips. A stop out at 50 per cent arrives when equity falls to ₹10,000. That is a loss of ₹30,000, or 3,000 pips.
The distance between the two thresholds is 1,000 pips in this example. Once the margin call is reached, you have 1,000 pips of room before the stop out. On USD/INR, 1,000 pips is a move from 83.2500 to 84.2500 or to 82.2500. That can happen in a single session when a central bank speaks or a major data release lands. The room between the two levels is not a safety net. It is a countdown.
The order in which positions are closed
When equity reaches the stop out level, the broker closes positions. It does not close all of them at once. It closes one, then checks the equity again. If equity is still at or below the stop out level, it closes another. This repeats until equity is back above the level or no positions remain.
The first position closed is usually the one with the largest running loss. That is the position doing the most damage to equity. Closing it releases its margin and removes its loss from the equity calculation. If that single close lifts equity above the stop out level, the process stops. Your other positions stay open.
The broker does not choose the position with the best chance of recovery. It chooses the position that fixes the number fastest. This is why holding several losing positions at once is more dangerous than holding one. Each position uses margin and adds loss. The stop out may close the one you most wanted to keep.
From ₹50,000 to stop out at 50%
| Step | Amount | Note |
|---|---|---|
| Account balance | ₹50,000 | Cash you deposited using UPI or bank transfer. |
| Position opened | 1 standard lot USD/INR at 83.2500 | One standard lot is 100,000 units. |
| Margin blocked at 100% level | ₹50,000 | Broker sets margin equal to balance, so margin level is 100%. |
| Margin call level | 100% | Equity equals used margin. You are warned, not closed. |
| Stop out level | 50% | Equity falls to half the used margin. Broker closes positions. |
| Equity at stop out | ₹25,000 | 50% of ₹50,000 used margin. |
| Loss allowed before stop out | ₹25,000 | ₹50,000 balance minus ₹25,000 equity. |
| Pips that cause that loss | 2,500 pips | ₹25,000 divided by ₹10 per pip. |
| Price move on USD/INR | 83.2500 to 85.7500 | 2,500 pips against the position. |
| What the broker closes first | The position with the largest loss | Brokers usually close the biggest loser first to restore margin level. |
Brokers may round pip values, add commission or swap charges, and quote different margin call and stop out levels. Check your own platform.
Doing it once, step by step
Work through these steps once with a pen and paper before you trade. They show you where your own margin call and stop out sit.
- 01
Find your broker's two levels
Open your trading platform and look for the margin call level and the stop out level. They are often shown as percentages. Write both numbers down. If you cannot find them, ask your broker's support desk. Do not assume they are 100 per cent and 50 per cent.
- 02
Note the margin per lot
Find the margin requirement for one standard lot of USD/INR. It may be a fixed rupee amount or a percentage of the position value. Write it down. This is the number the broker uses to calculate both thresholds. It changes when your broker changes its margin policy.
- 03
Calculate your margin call equity
Multiply the margin per lot by the number of lots you plan to hold. Then multiply that by the margin call percentage. For one lot with ₹20,000 margin and a 100 per cent margin call, the figure is ₹20,000. This is the equity level at which the warning arrives. Subtract it from your balance to see the loss in rupees.
- 04
Calculate your stop out equity
Multiply the same used margin by the stop out percentage. With ₹20,000 margin and a 50 per cent stop out, the figure is ₹10,000. Subtract that from your starting balance to get the loss at stop out. Divide the loss by ₹10 per pip to get the number of pips. That is your true room.
- 05
Compare the pips with the daily range
Look at how far USD/INR moves in a normal day. If your room to stop out is 3,000 pips and the pair moves 500 pips on a busy day, you have several days of room. If your room is 300 pips, one session can end your trade. Adjust your lot size until the room is larger than a normal day's move.
- 06
Decide your exit before you enter
Choose the price at which you will close the trade yourself. Place that exit as a stop loss order when you open the position. Your chosen exit should sit well above the stop out level. If it does not, reduce your lot size. The broker's stop out is not your plan. It is what happens when you have no plan.
The mistake most people make here
Many people treat the margin call as a warning they can ignore, hoping the price will turn. They add money or open another position, which uses more margin and brings the stop out closer. Instead, when equity reaches the margin call level, reduce position size or close the trade yourself. That way you choose the exit price, not the broker.Check yourself
You have ₹40,000 balance and use ₹20,000 margin. At what equity does a 50% stop out trigger?
50% of ₹20,000 is ₹10,000. Stop out triggers when equity falls to ₹10,000.
With ₹10,000 equity at stop out and ₹10 per pip, how many pips of loss does that represent from the ₹40,000 start?
Loss is ₹40,000 minus ₹10,000 = ₹30,000. ₹30,000 divided by ₹10 per pip = 3,000 pips.
Questions that come up next
What is the difference between a margin call and a stop out?
A margin call is the level where your broker warns you that your equity has fallen to the margin you used. A stop out is the level where the broker closes your positions without asking. The margin call is a notice. The stop out is an action. The two levels are set as percentages of used margin, not of your balance.
How is equity calculated when I have an open position?
Equity is your balance plus or minus any running profit or loss. If your balance is ₹40,000 and you have a loss of ₹5,000, your equity is ₹35,000. Used margin is the deposit locked for the open position. Free margin is equity minus used margin. The broker watches equity against used margin.
What happens if I add money after a margin call?
Adding money increases your equity, which can push the stop out further away. But it does not reduce the loss on the open position. If the price keeps moving against you, the new money will also be at risk. The same is true if you open another position: it uses more margin and brings the stop out closer.
Can the stop out level change while my position is open?
The stop out level is set by your broker and can vary between brokers. Some brokers may change it, but they usually give notice. Your platform shows the current level. Always check your own platform for the exact figures. The example here uses 50 per cent, but yours may be different.
Why does the broker close the largest loss first?
Closing the position with the largest loss frees the most margin quickly. That helps bring equity back above the stop out level. It also reduces the risk of further losses on that position. The broker may close one position, then check equity again before closing another.
How many pips can the price move before I get a margin call?
It depends on your balance, used margin and the margin call level. In the example, with ₹40,000 balance and ₹20,000 used margin, a margin call at 100 per cent comes after a loss of ₹20,000. At ₹10 per pip, that is 2,000 pips. On USD/INR, that is a move from 83.2500 to 85.2500 or to 81.2500.
The words used on this page
- Equity
- Your balance plus or minus any profit or loss on open positions. It changes as the price moves. The broker uses equity to decide if you have enough margin.
- Used margin
- The deposit locked by your broker when you open a position. It is not available for other trades. It is returned when you close the position.
- Free margin
- Equity minus used margin. It is the money available to open new positions or to absorb losses. When free margin reaches zero, you are at the margin call level.
- Pip
- The smallest common price move in a currency pair. For USD/INR, one pip is usually 0.0001. On one standard lot, one pip is worth ₹10 in this example.
- Stop out
- The level where your broker closes your positions to prevent further losses. It is a percentage of used margin. The broker does not ask before acting.
- Margin call
- A warning from your broker that your equity has fallen to the margin you used. It is not a request for more money. It is a signal to reduce your position size or close trades yourself.
What to take away
- The margin call is a warning; the stop out is a forced exit. Both are percentages of used margin.
- Equity is balance plus or minus running profit or loss. Free margin is equity minus used margin.
- On one standard lot of USD/INR, one pip is ₹10. A 1,000-pip move against you is a ₹10,000 loss.
- When equity hits the margin call, reduce your position size or close the trade yourself. Do not add money or open new positions.
- Brokers set different margin call and stop out levels, and may add commission or swap charges. Check your own platform.