What is Margin call (stop-out)?
Margin call va stop-out
In short
On a leveraged account, the broker's demand for more funds, or the forced closing of positions, once losses push equity below a set level. Positions are often closed near the low.
For example, at 1:10 leverage with a close-out at 50% of required margin, a 5% price drop is enough.
Also known as: stop-out, margin close-out
A margin call happens on a leveraged (margin) account when losses push your own equity below a set level: the broker demands that you add funds or reduce positions. If that isn't done, or the losses continue, a stop-out follows — the broker closes positions itself.
How it works
With leverage you borrow from the broker to open a position larger than your capital. To protect its loan, the broker requires minimum margin. Losses come out of your equity first. When equity falls to the threshold — margin call; lower still — stop-out.
- For US stock margin accounts, FINRA's minimum maintenance requirement is 25% of the position's value; many brokers require more.
- CFD and forex brokers usually work with a "margin level" rule (for example 50%).
Why it's dangerous
Forced liquidation often happens at the worst moment — near the low. Even if price recovers afterwards, you no longer hold the position. The bigger the leverage, the shorter the distance to a margin call.
How to protect yourself
Use no leverage or only a little, and a stop-loss on every position — it gets you out at a point you chose, not the broker. Also note that margin debt usually carries interest, which is a separate issue from a halal investing perspective (riba).
Leverage multiplies losses too: deposit loss = price move × leverage. At 1:20 a 5% drop wipes out the whole deposit (in practice the broker closes you out even earlier).
Example
Deposit $1,000, leverage 1:10 → a $10,000 position (illustrative). Required margin is 10% of the position = $1,000. Broker rule: stop-out when equity falls to 50% of required margin, i.e. $500.
- Loss allowed before stop-out: $1,000 − $500 = $500.
- That's $500 ÷ $10,000 = 5% of the position.
- So a price drop of just 5% forces the position closed and wipes out half the deposit.
For comparison: without leverage, a 5% drop on a $1,000 position is a $50 loss, and the position stays open. See the recovery math in the drawdown calculator.
Mistakes and tips
If you use leverage, calculate the stop-out price in advance and put your stop-loss well before it.
"Rescuing" a margin call by adding money often just means making a losing position bigger.
Reduce leveraged positions before earnings and major news: a gap can breach the margin requirement instantly.
Frequently asked questions
- What is the difference between a margin call and a stop-out?
- A margin call is a demand to add funds or reduce positions. A stop-out is the broker closing positions itself; it can follow a margin call or happen immediately.
- Can you get a margin call without leverage?
- No. A cash account has no loan, so in the worst case the stock's value falls, but the broker won't force a sale.
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