Margin call / stop-out
When losses eat through free margin, the broker first warns (the traditional "margin call") and then force-closes positions at market price (the stop-out) — typically when equity falls to a set percentage of required margin, like 50%.
A stop-out is the market's way of ending an argument you were losing. Well-sized strategies never come near it; if a strategy's normal drawdown can approach stop-out territory, the sizing is wrong, not the broker.
Covered in depth in Lesson 03: Risk management before anything else.
Related terms
- Margin — The deposit a broker locks as collateral while a leveraged position is open.
- Leverage — Borrowed buying power from the broker that lets a small deposit control a much larger position.
- Drawdown — The decline from an account's peak value to its subsequent low — the number that measures how painful a strategy is to hold.
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