The concepts of Margin call and Stop out: what it is and how to use it in trading. Practical calculation examples. Risk management model for predicting account levels
Margin calls and Stop out are one of the trading conditions that must be indicated in the description of the account.
A margin call is a notification from the broker about the need to replenish the account because the loss on open transactions is close to a critical value. If funds are not deposited and the loss continues to increase, transactions will be closed by the broker forcibly.
Stop out is a signal for automatic closing of transactions, which occurs when there is an insufficient level of funds to maintain open transactions on the account. Each broker prescribes% of this level in his agreements and it may differ.
Monitoring the level of the account is one of the mandatory rules of risk management. To optimize this process, professional traders often create models to assess the level of acceptable drawdown for given leverage and position volume. You will read about how to create models such as calculating the level of accounts and how to manage leverage in this review.
Margin Call and Stop Out: the essence and rules of calculation
Terminology is the first thing a trader should get to know before trying his hand at Forex. Without it, not only successful earnings are impossible, but also simply interaction with a broker. Beginning traders in most cases for some reason believe that it is enough to download the strategy from the Internet, do everything exactly according to the recommendations on the demo account, and you can start “knock off the money”.
Buttons such as “I have read, understand and agree to the Terms” are clicked automatically. Traders simply ignore such a thing as an “offer”, where all trading conditions for each type of account are registered. This may ultimately lead to losses and misunderstandings between the broker and the trader. Today I will introduce you to two important terms, “Margin call” and “Stop out”, the parameters of which are always indicated by brokers in the trading conditions of the account.
In this review you will learn:
- What is Margin Call and Stop Out with practical examples, I have already given the definitions above.
- How to build a model that allows you to control the level of acceptable quotes and how to use it in trading.
- How to prevent the closure of Stop Out positions.