Margin close-out

When the margin level reaches the firm's stop out level, the platform begins closing positions without a further instruction. It is an automated procedure written into the account terms, it runs on the server rather than in the application on a screen, and it happens whether or not anybody is watching. The purpose is to stop the collateral being consumed further, not to protect a view about the market.

Which position closes first is a firm level rule and providers differ. The most common convention closes the position with the largest unrealised loss first and then re-tests the level, closing the next one only if the account is still below the threshold. Others close everything at once, and others again close in the order the positions were opened. Regulated retail rules in several jurisdictions specify a close-out level as a percentage of the margin required on all open positions taken together, rather than position by position.

Two consequences are worth stating exactly. The close-out is executed at the prices available when it runs, not at the threshold that triggered it, so in a gapping market the resulting fills can sit well beyond it and the account can end below the level the procedure was meant to hold. And the mechanism is not the same thing as negative balance protection, which is a separate undertaking about the balance itself. Losses are calculated on the full contract value throughout and are not limited to the amount deposited.