The difference broker has a different margin call and stop out policy.
In the previous two chapters, we have studied using the example of trading on a broker with a 100% margin call without separate stop-outs.
And a broker applying a margin call level 100% with a 50% stop out level.
This time we will discuss different brokers with different margin calls and stop out levels.
Each broker has a different policy in determining the margin call level and stops out level.
Actually it is very important to know how your broker determines the margin call and stop out level.
But most beginner traders pay less attention to this matter and they only register and then start trading without knowing how the broker determines the margin call level and stop out level.
TenkoFX broker provides services to traders on forex trading, CFDs and crypto trading.
Margin calls and stops out levels depend on the selected account type, you can read it on the account trading page
Each broker handle margin call in different ways
Some brokers apply the margin call and stop out rules to be the same one, meaning the broker does not give a warning about the low margin reaching the margin call level limit via email to the trader.
But they will liquidate trading accounts that have reached the margin call level limit.
An example is a broker that implements a 100% margin call level policy and without using a separate stop out level
If you trade using a broker service that has a policy like this then if your margin level conditions have reached 100% then your position will be liquidated automatically by the broker without any warning first.
Maybe you will be shocked when you see your liquidated position leaving only a few dollars in your account balance.
While other brokers apply margin calls and stop outs in different ways.
They use a margin call as an early warning that your account is at risk and may be liquidated by a stop out.
This warning is mostly through e-mail that was used to register the broker.
For example, a broker has a policy margin call level of 100% and a stop out level of 20%, as in the example of trading with $ 100 that we discussed earlier.
This means that if your trading account has reached the 100% margin level.
The broker will send a warning email so that it becomes a concern to close one position or make a deposit as additional funds to increase the margin level.
But if you ignore the warning and your margin level has reached 20%, the broker will automatically liquidate your trade.
Type of margin call
In general, the type of margin call broker is divided into two types:
- The first is a margin call using a separate stop out.
- The second is a broker who uses a margin call without using a separate stop out.
At brokers who use separate margin calls and stop-outs.
They will send a warning that your equity has fallen below the required margin level percentage, there is no equity to hold further price movements.
And for brokers who use margin calls without separate stop-outs.
When your equity decreases and the margin level percentage reaches the margin call threshold, the broker will close automatically one of your positions so that the margin level reaches above the threshold without a warning
If you are still confused with the explanation above, maybe with the diagram in the image below you will find it easy to understand.
For brokers who use separate margin calls and stop out policies, imagine that the margin call is a warning shot.
While the stop out is an action to liquidate so that your account does not increase loss and make your equity become negative.
When a trader gets a margin call warning, this will give the trader time to manage their position before it will finally be closed automatically because the stop out level has been reached.
This is different from traditional margin calls, where the margin call and stop out are the same
There is no warning is sent to your email address, but your position will be automatically liquidated as a shooting action.
In the end, it will be your own responsibility.
Whether to let the broker close the transaction because it is the company’s policy, or you will add a deposit to maintain the position.
How to prevent stop out?
The first is you better know how the company policies for a margin call levels and stop out levels.
If the broker has a margin call policy and the stop out is the same.
Then you need to pay attention to the margin level that can be seen on the trading platform when there are open positions.
If the margin level is too low or almost reaches the margin call threshold.
Then this is a concern.
Besides all these reasons, the leverage factor is also very influential in a stop out.
Indeed by choosing high leverage this will increase profits but is directly proportional to accelerate losses.
Using over-leverage is one reason why traders become greedy and want to get a lot of profit in a short time.
Which in fact will often bring disaster to your trading account.
Reading the policy on margin call level and stop out at the chosen broker is actually important so this will provide a reference for how your trading account should be treated.
However, this is often ignored by novice traders when they register trading accounts with brokers, although this may seem trivial, it will provide an early warning when your margin level starts low.
Maybe you also do not pay much attention when your trading account experiences automatic liquidation by the broker.
And ask why there was no prior notice, this is because each broker has a different margin call and stop out policy.
By learning about the broker’s policy on margin calls and stop out levels, we hope to provide basic knowledge before choosing a broker.
For the next chapter, we will discuss leverage and its relation to margins.