What is a Margin Call and a Stop Out?

It's not necessary to spell Margin Call and Stop Out with capital initials, but we truly believe the emotional scar these leave on the soul of the inexperienced forex trader is significant enough to warrant the use of capital initials :-)

Sooner or later almost every novice will have to go through the Margin Call event. It's a situation which smacks the trader right in the face. And off his overconfident attitude goes.

If you do not place Stop Loss orders on your open positions, and have left the battlefield (your screen), it is very possible you will get a Margin Call. Then, if the usable margin of your account gets down to 30% of the required margin to open a position, you will either get a warning asking you to deposit more money or your broker will automatically close all your open positions. This depends on the broker.

With some brokers Margin Call and Stop Out levels coincide. If Margin Call and Stop Out levels are both 30%, for instance, then your positions will be automatically closed. If Margin Call is at 30% and Stop Out is at, say, 15%, then you will first get a Margin Call warning and then after you incur more losses your open positions will be closed and you will be left with just a fraction of the money you had before opening the losing positions. Why do the brokers do that? Because they are nasty? No, they want to protect you. From whom? From yourself. You will agree that it's better to be left with some money than with no money, right?

Make sure you ask your broker about the exact conditions for getting a Margin Call and a Stop Out.