Alright, now we will continue the discussion for an example of a **100% margin call with a stop out level of 50%.**

In the previous chapter, we discussed using the example of a broker that uses policy margin call 100% without using a separate stop out level.

We understand that each broker may have different policies for margin call levels and stop out levels.

Some only use margin call level rules, and some use margin call levels and stop out levels.

How do brokers apply the Margin Call Level policy at 100% and the Stop Out Level at 50%?

What will happen if it turns out that your transaction reached the worst condition?

We will discuss it in this chapter, let’s check it out?

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

Open account or try Demo account.

## The first step is to Deposit Funds to the Trading Account

In this example you made a deposit of** $ 10,000**, so your **account balance will also be $ 10,000.**

When you don’t have an open position, because you just made a deposit.

Your trading account will look like the image below.

### The second step is calculating the required margin

After you make a deposit, then your desire arises to open a new position on the pair GBP / USD at that time at the price of 1.30000.

And you will buy with a position size of 1 standard lot or 100,000 units with a margin requirement of 5%.

What is the required margin to open this position? Alright, we will do the calculation.

Because your trading account is denominated in USD, you need to convert GBP to USD, because here the base currency is GBP.

We do this to get the national value.

£ 1 = $1.30 £ 100,000 = $130,000

**We have got a national value of $ 130,000.**

Next, we will calculate the required margin value by using the formula as described in the previous chapter.

Required Margin value = Notional Value x Margin Requirement $6,500 = $130,000 x .05

**After we calculated it turns out that the required margin value is $ 6,500.**

### The third step is the calculation of used margins

Because in this example we only have one position and there are no other positions so to calculate the used margin we will easily make this calculation.

In the calculation above, we have got a margin requirement of $ 6500 so when the position is opened the used margin = margin requirement, in this case, the **used margin is $ 6500.**

Until this calculation, we get the following data:

- Account balance = $ 10,000
- Required margin = $ 6,500
- Used margin = $ 6500

Why are the required margins = used margins? Since you only have one position on GBPUSD.

If you have other positions with different lot sizes.

Then the calculation of the required margin must be added to all those positions.

### The fourth step calculates equity

How to calculate this equity we have studied with the example in the previous chapter, namely by calculating account balance with floating profit/loss.

Let say after you open a Buy position on GBP / USD, the price moves towards you shortly and you find floating profit/loss = 0.

By using the formula as in the previous chapter, we get equity data.

Equity value = Account Balance + Floating Profits/Losses $10,000 = $10,000 + $0

**The amount of equity when you find floating profit/loss = 0 is $ 10,000,** this means it is still the same as the amount of your account balance.

Until this calculation, we get the following data:

- Account balance = $ 10,000.
- Used margin = $ 6500.
- Equity value = $ 10,000.
- Floating profit / loss = 0.

### The fifth step is to calculate the free margin

How to calculate the free margin we have discussed in the previous chapter by subtracting equity minus used margin.

Because we already know the value of equity, then we only do the calculation using the formula to calculate equity as we did in the previous chapter.

Free Margin value = Equity - Used Margin $3,500 = $10,000 - $6,500

From the calculation above, we get a **free margin value of $ 3,500.**

At this point, we have obtained the following data:

- Account balance = $ 10,000.
- Equity value = $ 10,000.
- Used margin = $ 6,500.
- Free margin = $ 3,500.
- Floating profit / loss = 0.

### The sixth step calculates the margin level

How to calculate the margin level we discussed in the previous chapter, that is equity divided by used margin multiplied by 100%.

We have obtained the data needed to calculate the margin level so that by using the formula to calculate the margin level we will get a value.

Margin Level percentage = (Equity/Used Margin) x 100% 154% = ($10,000 / 6,500) x 100%

Your current **margin level is 154%** when floating profit / loss = 0.

Until here your account trading will look like as image below.

## Trading scenario GBP/USD falls 400 pips

The dynamics of prices on the forex market are sometimes beyond the expectations of traders when you open a new position and find floating profit/loss = 0.

This is not the end of your trade so long as you have not closed that position.

But what happens next is the price movement changes against your position and GBP / USD currently falls at 1.26000.

So you get a floating profit/loss of 1.30000 – 1.26000. = 400 pips, because you are buying at the size of 1 standard lot then the value of 1 pip = 10 $.

Thus you find floating profit/loss of **minus $ 4000.**

### The first step is to calculate the used margin

At the price of GBP / USD falling by 400 pips you find the used margin has changed, why has this changed?

Because prices have changed and national value will also change.

So this requires recalculating the required margin to determine the used margin.

When the GBP / USD price at 1.26000 is no longer at 1.30000 we will see how much margin is needed to maintain this open position.

Because your account is denominated in USD, you need to convert GBP to USD to get national value.

£ 1 = $ 1.26 £ 100,000 = $ 126,000

The **national value** of GBP / USD at 1.26000 is **$ 126,000.**

If previously the price of GBP / USD at 1.30000 was $ 130,000 because now the price has changed to fall 400 pips which means that the weakening GBP has caused the national value to also decrease.

Now we will re-calculate the required margin after the price falls 400 pips.

Required Margin value = Notional Value x Margin Requirement $6300 = $126,000 x .05

Because the change in national value has decreased, so has the required margin, and the margin requirement of 5% so that by doing the calculation we get a **required margin of $ 6,300**.

So the required margin after the GBP/USD price dropped 400 pips to go down, not like when GBP/USD was at 1.30000 where the required margin of $ 6,500 meant a fall of $ 200.

Changes in the value of the used margin reflect changes in the required margin due to price changes.

In this case, because you only open one position, the used margin is the same as the required margin, which means that the **used margin is $ 6300.**

### The second step calculates Floating Profit/Loss

GBP / USD has dropped from 1.30000 now at 1.26000 where there is a difference of 400 pips.

Because your position is to use 1 standard lot size, the value per pip is 10 $, in this case, the 400 pips **decrease value is $ 4000.**

We will calculate floating profit/loss using the formula as we did before, so the value of floating profit/loss is

Floating Profit/Loss = (Current Price - Entry Price) x 10,000 x $X/pip -$4,000 = (1.26000 - 1.30000) x 10,000 x $10/pip

You get a **floating loss of $ 4000.**

### The third step is calculating equity

To calculate equity we use the method as we did before by using the formula

Equity = Account Balance + Floating Profit/Loss $6,000 = $10,000 + (-$4,000)

Your total equity in the GBP/USD pair at the price of 1.26000 is **$ 6000**, we obtain this value using the formula as we have done before.

### The fourth step calculates free margin

How to calculate this free margin? we will again use the free margin calculation formula as we did before.

Free Margin value = Equity - Used Margin -$300 = $6,000 - $6,300

From the above calculation, you have a **free margin of -$ 300.**

### The fifth step calculates the margin level

Henceforth is calculating the margin level percentage, how to calculate the margin level is to use the formula as we did before, so the calculation is as follows.

Margin Level percentage = (Equity / Used Margin) x 100% 95% = ($6,000 / $6,300) x 100%

From this calculation, the value of your **margin level** has dropped below the margin call level of 100%, which currently your margin level is only **95%.**

Until the margin call limit is 100%, usually the broker will tell you that your margin level is too low.

You cannot open a new position unless your margin level reaches above 100% again, whether by making a deposit or the price moving back in the direction corresponding to the position.

## Trading scenario GBP / USD is down 690 pips

Price movements that are so dynamic sometimes make your account condition in critical condition.

When you find GBP / USD at the price of 1.26000 you still hope that the price will return to the direction of the position or move up again.

But apparently you can not control the wild price movements, the GBP / USD pair is currently falling back at the price of 1.23100.

So you find your position from the Ask price has fallen by 690 pips, from your initial position at 1.30000 now at 1.23100.

### The first step is to calculate the used margin

Because the price change has occurred, the calculation of the required margin also changes and this causes the value of the used margin to change.

GBP/USD is currently at 1.23100, if previously it was at 1.26000, we will calculate the used margin again.

Because account denominations use USD, we need to convert GBP to USD to determine the national value.

£ 1 = $ 1.23100 £ 100,000 = $ 123,100

We get the **national value at $ 123,100,** using this data we will continue to calculate the required margin.

Still the same as in the previous method, we use the formula to calculate the required margin value so that the calculation becomes as below.

Required Margin value = Notional Value x Margin Requirement $6,155 = $123,100 x .05

**Because the national value decreases so does the required margin.**

From the above calculation with a 5% margin requirement, we now have a required margin of **$ 6,155.**

The required margin value has decreased no longer as when GBP/USD was at 1.26000 which required a margin is $ 6,300.

Changes in used margin reflect changes in the required margin, in this example you only open at one position, so the value of the used margin is the same as the required margin.

The currently **used margin** at GBP / USD at 1.123100 is **$ 6.155.**

### The second step calculates floating profit/loss

GBP / USD has now fallen again from the price of open positions at 1.30000 to 1.23100, this means that this pair has fallen by **690 pips**.

By the way, because you use 1 standard lot, then the value of 1 pip is equal to $ 10, so you get a floating loss of **-$ 6900**

The calculation method is the same as the one we did before as follows

Floating Profit/Loss = (Current Price - Entry Price) x 10,000 x $X/pip -$6,900 = (1.23100 - 1.30000) x 10,000 x $10/pip

### The third step calculates equity

How to calculate the value of equity is the same as the previous method using the following formula.

Equity = Account Balance + Floating Profit/Loss $3,100 = $10,000 + (-$6,900)

From the above calculation, we get data for an **equity value of $ 3,100 **when pair move down 690 pips.

### The fourth step is calculating free margin

How to calculate the free margin is the same as what we did before using the following formula.

Free Margin value = Equity - Used Margin -$3,055 = $3,100 - $6,155

From the above calculation, we get the value of the** free margin** to minus,** – $ 3,055.**

### The fifth step calculates the margin level

How to calculate the margin level is the same as what we did before using the following formula.

Margin Level value = (Equity / Used Margin) x 100% 50% = ($3,100 / $6,155) x 100%

And it turns out that after doing calculations you find your **margin level is at 50%**, this means it’s already at the **stop out level of 50%** as determined by the broker.

When GBP / USD drops by 690 pips, the condition of your trading account will be like in the image below.

## Stop out level reached

In this example, we use a broker with a margin call of 100% and use a separate stop out level at 50%.

In this case, your trading account condition has reached the stop out level, so this causes the platform to automatically execute your position at a loss.

And because of this stop out, you will find it:

- All used margin will be released
- All floating profit/loss will be realized
- Your account balance will be updated which reflects your loss.

Maybe this will be a sad story when you face a stop out because you no longer have your position and your account is flat because Free Margin, Equity, and Balance will be the same.

If likened to a stop out level with a traffic light this is a red light, you must stop.

When all positions have been executed by the platform, your condition will be like in the image below.

In the beginning, you make a deposit you have an account balance of $ 10,000. now only **$ 3,100** left!

### Calculate the gain/loss percentage

Maybe you want to know the amount of your loss percentage and confused about how to calculate it.

To calculate the gain/loss from a trade you can use the following formula.

Gain/Loss percentage= ((Ending Balance - Starting Balance) / Starting Balance) x 100% -69% = (($3,100 - $10,000) / $10,000) x 100%

From the above calculation, you find your percentage loss of 69% of your initial capital.

## Final thought

Some brokers may apply a 100% margin call level and a 50% stop out level and to anticipate misunderstandings about this margin call you better contact the broker to find out about these stop out and margin call rules.

Because there are some brokers who use 100% margin calls without using a separate stop out level as in the previous chapter we discussed this.

Having the trading account closed automatically by the system is the worst condition of trading performance, maybe some traders will become traumatized by this condition when he makes a large deposit.

So it is highly recommended in forex trading to only use money that is afforded to lose.

**Open account or try Demo account
**

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