Margin call and stop out
What you learn in 3 minutesThis lesson shows the two levels a broker watches: the margin call, where you are warned, and the stop out, where positions are closed for you. On an account in Kenya funded with KSh, both levels are reached by the same thing: falling free margin, not falling profit alone. You will see how a KSh 108,500 balance behaves when EUR/USD moves against one open standard lot, and why the order in which positions close matters.
From 100 per cent to 50 per cent on one standard lot
| Step | Amount | Note |
|---|---|---|
| Account balance | KSh 108,500 | Deposited by M-Pesa or bank transfer, before any trade. |
| Position opened | 1 standard lot EUR/USD at 1.0850 | 100,000 units; one pip is 10 units of the quote currency, converted at the current rate. |
| Margin held at 1:100 | KSh 108,500 | The broker sets this ratio, so it varies between brokers. |
| Margin level | 100 per cent | Equity divided by margin, times 100. Equity equals balance when the trade is at break-even. |
| Loss to reach 50 per cent | KSh 54,250 | Equity falls to half of the margin held, so the margin level reaches 50 per cent. |
| Pips that loss represents | about 500 pips | KSh 54,250 divided by the value of one pip, which depends on the KSh rate used. |
| What the broker closes | the open position | At the stop out level the broker closes positions, largest loss first, until the margin level is back above the threshold. |
The broker may round the margin level, add commission or swap, and quote a slightly different conversion rate, so the exact pip count can differ. The 100 per cent and 50 per cent levels are common but each broker sets its own.
The mistake people make here
Many beginners watch only profit and loss and ignore the margin level, so the first they know of trouble is a closed position. Others add money after a warning without reducing the position, which lowers the margin level again as soon as price moves. Instead, check the margin level before opening a trade and decide in advance how much loss you will accept. If the warning appears, reduce the position size or close part of it rather than hoping for a reversal.Check yourself
A trader holds 2 standard lots of EUR/USD with KSh 217,000 margin. Equity falls to KSh 108,500. What is the margin level?
Equity divided by margin, times 100: 108,500 / 217,000 x 100 = 50 per cent. That is the stop out level in this lesson, so the broker may close positions.
One standard lot of EUR/USD moves 20 pips against the trader. Using 10 units of the quote currency per pip, what is the loss in the quote currency before conversion?
20 pips x 10 units = 200 units of the quote currency. Converting to KSh depends on the rate at the time, so the shilling figure varies.
If the margin level is 100 per cent and equity is KSh 80,000, what is the margin held?
Margin equals equity divided by the margin level as a decimal: 80,000 / 1.00 = KSh 80,000.