What Are Margin and Stop Out? A Gold Example That Shows When an Account Blows Up

Getting stopped out, or "blowing up" an account, is what traders fear most. In fact it is not a sudden accident; it follows clear rules. Once you understand a few margin numbers, you can tell in advance where price would cause trouble.

The 5 numbers on your account page

Most trading platforms show these on the account page:

• Balance: the result of closed trades, excluding open profit or loss
• Equity: balance + floating profit or loss on open positions, what the account is really worth right now
• Used margin: the money locked up when positions are opened
• Free margin: equity − used margin, what is left to open new trades or absorb losses
• Margin level: equity ÷ used margin × 100%

The first four are amounts; the last is the measure the platform uses to decide whether to close your positions.

What are a margin call and a stop out?

As the margin level falls, platforms usually have two lines:

1. Margin call: when the level drops to a certain point, the platform warns you that risk is high; some platforms also stop you opening new trades at this point
2. Stop out: when the level falls further, the platform closes positions automatically, on many platforms starting with the biggest loser. This is what traders call blowing up

Common settings are a 100% margin call and a 50% stop out, but they can differ between platforms and account types, so check your platform's rules.

A worked gold example

Assume a 1,000 dollar account with 1:100 leverage buys 0.1 lot of gold at 4,000 (10 ounces on most platforms), with a 100% margin call and a 50% stop out. To keep it simple, spreads and swap are ignored.

• Used margin = 10 ounces × 4,000 ÷ 100 = 400 dollars
• Margin level at entry = 1,000 ÷ 400 = 250%
• Every 1 dollar fall in gold loses 10 dollars

Where does the margin call come? A 100% level means equity is down to 400 dollars, a loss of 600 dollars. That is a 60 dollar fall in gold, to about 3,940.

Where does the stop out come? A 50% level means equity is down to 200 dollars, a loss of 800 dollars. That is an 80 dollar fall, to about 3,920.

A 30 to 50 dollar daily move in gold is not unusual, and major data can move it more. In other words, for a 1,000 dollar account this position could be stopped out by one or two days of normal movement. With 0.01 lot instead, used margin is only 40 dollars; to bring equity down to 20 dollars, gold would have to fall 980 dollars. The risk is completely different.

Warning signs usually come well before a stop out

• No stop loss, just waiting while the loss grows
• Adding to losing trades, so used margin keeps rising
• Too many trades open at once, leaving little free margin
• Holding a large position into data releases: when spreads widen the margin level drops instantly; see why spreads suddenly widen
• Holding a large position over a weekend or holiday: a gap at the open can jump straight past the stop-out price. Some platforms offer negative balance protection; check your platform's rules

How to avoid being stopped out

1. Let your stop loss act before the stop out: a stop loss is an exit you choose; a stop out is one the platform chooses for you, usually at a much worse price. See where to put your stop loss
2. Risk 1% per trade: size your trades with risk 1% per trade position sizing, so the stop loss gets you out long before the stop-out line
3. Keep plenty of free margin: do not run margin tight, and do not stack many trades in the same direction
4. Cut size before major data: check release times on the economic calendar

To plan your stops around gold's key levels each day, see the gold analysis page. Download the Borearis app to set price alerts that notify you when price nears the levels you care about.

Borearis Research Team · For information only, not investment advice. Trading involves risk.