Stop out level

A threshold applied to the margin level, which is account equity divided by the margin currently used by open positions, expressed as a percentage. Equity moves continuously with the unrealised result on those positions, so the ratio moves with every tick. When it falls to the threshold the platform begins closing positions, conventionally the largest loss making one first, and continues until the ratio is back above the level.

It is automatic and it is not a warning. Where a firm operates a separate and higher margin call level, that is the notification stage; the stop out is the action stage. Both are set by the firm rather than by the market, both differ between firms and between account types, and because the calculation runs on live prices, a fast move can carry an account through both between one tick and the next, with no interval in which anything could be done.

What the mechanism protects is the point most often inverted. Closing out limits the exposure the firm is carrying on the account; it does not preserve the account's value, because the positions are closed at whatever the market is offering and those losses are realised. In a gapping market equity can fall below zero before anything can be closed at all, which is the situation negative balance protection addresses where it applies. Losses on a leveraged contract are calculated on the full contract value and are not limited to the amount deposited, and an automatic close out does not change that arithmetic.