What is MARGIN CALL and STOP OUT?

Why are they important?

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What is MARGIN CALL and STOP OUT?
Why are they important?

Key content:
* When your account funds drop to the stop out level, the order will be closed automatically.
* The stop out level is determined by the broker.
* The larger the lot size open and the less money in the account, the higher the chance of a stop out.
* VANTAGE FX has STOP OUT and MARGIN CALL levels of 50% and 80% respectively.

What is Margin call?

Margin call is a signal that the broker will send to its clients as a reminder that your trading account is at risk of losing money. (The most common language to use is a near-break port).

VANTAGE FX will send margin calls to alert when the account margin percentage drops to 80%.

The client can check the margin percentage level of the account as shown in Figure 1

What is Stop out?

Stop Out refers to the margin percentage level set by the broker to hedge service risk. When the account margin percentage drops to 50%, VANTAGE FX will close that order (trading orders) automatically. This is to prevent negative funds in the account and the broker will always close the most negative orders first then followed by the second and third most negative orders, respectively.

Example of Stop out:

In the case that the client has $ 100 USD on his account and opens 3 EURUSD orders which each order is 0.1 lot. The Client will have a pending order as follows:

  • 1. Order A 0.1 lot
  • 2. Order B 0.1 lot
  • 3. Order C 0.1 lot

If Order A is negative -30$, Order B has negative -25$ and Order C has negative -15$.

When the margin percentage level drops to 50%, the broker will automatically close orders A, and if the margin percentage level is still below or equal to 50%, the broker will close orders B and C. This will be continued until the account margin percentage level is more than 50%.

Guideline:

Clients can calculate lot size which is appropriate to your account
Clients can calculate a lot size that is suitable for the amount in the account by using the formula
Margin = "Equity" / "Margin%" X100
LOT = "Margin X Leverage level" / "Contract Size X Price of currency pair X Unit conversion to dollars"

Remark:

* The above formula is for a trading account that is denominated in $ USD and trades only on commodities followed by USD, such as EURUSD, GBPUSD, AUDUSD, XAUUSD and other currency pairs.

* For a product followed by USD, the dollar conversion unit is always 1

Example:

If the client has $ 1,000 USD in their account and wants the percent of margin above the 1,500% level, the client chooses the leverage level of 500: 1 and only trades currency pairs of EURUSD.

The lot size that will be given to the clients will be
Margin = "1,000" /"1,500" X100 = 66.67 USD
The total maximum that should be opened = = "66.67 X 500" /"100,000 X 1.20000 X 1" =0.27 lot

Remark:

*The Equity here is equal to 1,000 because the account has not yet opened an order
* The example of calculation is applicable only to pairs of currencies which end with the USD.

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