Margin call and stop out
What you learn in 3 minutesA reader asked: 'I keep hearing about a margin call and a stop out, but what actually happens to my money?' This lesson shows the two lines a broker watches on your account, what each one does, and how the numbers on a USD/ZAR position can move you from one line to the other.
From 100% to 50% margin level on one USD/ZAR trade
| Step | Amount | Note |
|---|---|---|
| Account balance | R10 000 | Your own cash in the account, no bonus, no credit. |
| Margin used to open the trade | R2 000 | Required margin on a small USD/ZAR position, set by the broker. |
| Free margin after opening | R8 000 | Balance minus margin used: R10 000 − R2 000. |
| Margin level at the start | 500% | Equity divided by margin used, then × 100: R10 000 ÷ R2 000 × 100. |
| Margin call line | 100% | Equity equals margin used. Here that is R2 000. The broker warns you. |
| Stop out line | 50% | Equity is half of margin used. Here that is R1 000. The broker closes positions. |
| Loss that reaches the margin call | R8 000 | R10 000 − R2 000. Equity falls to R2 000, which is 100% of R2 000. |
| Further loss to reach the stop out | R1 000 | R2 000 − R1 000. Equity falls to R1 000, which is 50% of R2 000. |
| Total loss from balance to stop out | R9 000 | R8 000 + R1 000. R10 000 − R1 000 leaves R1 000. |
The exact margin call and stop out percentages vary between brokers. Some close the largest losing position first, some close the most recently opened one, and some close all of them. The broker may also round prices, charge overnight swap, and close at the market price, so the final rand figure can differ from the line you calculated.
The mistake people make here
The common mistake is to treat the margin call as a warning that gives you unlimited time to fix things. It is not. The stop out can follow quickly, and the broker chooses which position to close, not you. People also confuse margin used with money lost: the R2 000 is still your equity until the trade moves against you. Instead, work out your distance to the stop out before you open the trade, and decide in advance what you will do if price reaches it.Check yourself
Your balance is R10 000, margin used is R2 000, and equity falls to R1 500. What is your margin level, and is it below the 100% margin call line?
Margin level = R1 500 ÷ R2 000 × 100 = 75%. Yes, 75% is below 100%, so the margin call line has already been crossed.
Using the same R2 000 margin used, what equity gives a margin level of 50%?
50% of R2 000 is R1 000. At R1 000 equity, the margin level is 50%, which is the stop out line in this example.