What Happens to Your Open Trades During a Margin Call?
A margin call in forex is a notification from the broker that the trader’s account equity has fallen close to the minimum required to maintain open positions. If the situation continues to deteriorate, the broker will eventually begin closing positions automatically to bring the account back to a safe margin level. Both events are governed by the account’s margin level, calculated as equity divided by used margin and expressed as a percentage. The specific thresholds vary by broker and jurisdiction, but the mechanics are similar across most retail forex brokers. This article explains what a margin call is, what happens to open trades when one is triggered, the difference between a margin call and a stop out, and how regulatory rules such as the ESMA close-out requirement affect retail traders in some jurisdictions.
What a Margin Call Means
When a trader opens a position, the broker reserves a portion of the account’s cash as collateral, called the used margin. The remaining cash is the free margin. The relationship between the two is captured in the margin level:
Margin Level = (Equity / Used Margin) × 100
When all positions are profitable or at break-even, equity equals or exceeds the balance, and the margin level is comfortable. When positions move into floating losses, equity falls, and the margin level drops accordingly.
A margin call occurs when the margin level falls to a threshold defined by the broker, typically 100%. At that point, the equity equals the used margin, meaning the trader has no free margin left to absorb further adverse moves. The broker issues a margin call as a warning that positions are close to being force-closed.
The margin call itself does not close positions. It is a notification, displayed in the platform and sometimes sent via email or SMS depending on the broker. The trader can respond by depositing more funds, closing some positions manually, or doing nothing.
What Happens If Losses Continue
If the trader does not act and the market continues to move against the open positions, the margin level continues to fall. When it reaches a second, lower threshold called the stop out level, the broker begins closing positions automatically.
The stop out level is typically lower than the margin call level. A common pattern is a margin call at 100% and a stop out at 50%, though the exact values vary by broker and regulatory regime. At the stop out level, equity has fallen to 50% of used margin (or whatever the specific threshold is), and the broker enforces position closure to prevent the account from going further into deficit.
The broker’s automatic closure begins with the most loss-making position first. The largest floating loss is closed, which immediately reduces the used margin and may restore the margin level above the stop out threshold. If margin level is still below the threshold after the first closure, the next-largest losing position is closed, and so on, until the margin level is back above the stop out.
The trader generally cannot prevent these closures once they begin. The trades are closed at whatever market price is available at the moment of closure, which may be substantially different from the prices that were displayed seconds before, particularly in fast-moving markets.
The Sequence of Events
A typical margin call and stop out sequence proceeds in stages.
In the first stage, positions are in floating loss but margin level remains above the margin call threshold. The trader sees the equity falling in the Terminal but no automatic action is taken.
In the second stage, margin level reaches the margin call threshold (typically 100%). The broker issues a notification. The trader can deposit funds, close positions, or wait. Many platforms display warning indicators in the Terminal at this point.
In the third stage, margin level continues to fall toward the stop out threshold (typically 50%). The trader has a narrowing window to act before automatic closures begin.
In the fourth stage, margin level reaches the stop out threshold. The broker begins closing positions, starting with the largest floating loss. Each closure reduces used margin and increases margin level, and closures continue until the level is back above the threshold.
In the fifth stage, after the stop out, the remaining account equity is whatever is left after the forced closures. The account typically has reduced positions (or no positions) and a balance that may be substantially lower than before the sequence began.
| Stage | Margin Level | What Happens |
|---|---|---|
| Healthy | Well above 100% | Normal trading conditions |
| Warning | Approaching 100% | Equity dropping, warning indicators may appear |
| Margin Call | 100% (broker-defined) | Notification issued, positions still open |
| Approaching Stop Out | Between 100% and 50% | Trader’s last chance to act |
| Stop Out | 50% (broker-defined) | Broker begins closing positions, largest loss first |
Regulatory Variations
The specific margin call and stop out levels depend on the broker and the jurisdiction. Three regulatory frameworks affect retail forex accounts.
ESMA-regulated brokers, which serve retail clients in the EU and UK, enforce a 50% margin close-out rule. When the margin level falls to 50%, the broker must begin closing positions. This is a regulatory requirement rather than a broker-set threshold and applies uniformly across all retail accounts under ESMA jurisdiction.
ESMA also requires negative balance protection for retail clients. This means the account cannot go below zero even in fast markets where forced closures fail to execute at the expected prices. If the stop out fails to prevent a loss greater than the account balance, the broker absorbs the difference rather than passing it to the client.
Australian (ASIC) regulations for retail clients are similar to ESMA in many respects, with capped leverage on major forex pairs and a margin close-out requirement.
In jurisdictions with lighter retail protections, brokers may set their own thresholds. Margin call at 100% and stop out at 50% is common, but some brokers operate with different ratios (such as stop out at 20% or 30%).
The trader’s account agreement and the broker’s contract specifications include the specific thresholds. These can usually be verified in the account dashboard or in the broker’s terms.
What the Trader Sees
During a margin call event, the Terminal window typically displays warning indicators. The account summary at the bottom of the Trade tab highlights the falling margin level, often in red as the level approaches the stop out threshold.
The broker may send a notification through the platform’s Mailbox tab, through email, or through SMS, depending on what the trader has enabled. The notification typically warns of the margin call and may include the current margin level and the threshold at which automatic closures will begin.
When automatic closures are triggered, each closed position appears in the Journal tab with a label indicating it was a stop-out closure. The History tab also reflects the closed trades. Trades closed by the broker often appear with comments such as “so” (stop out) or similar shorthand.
How to Avoid a Margin Call
Three practices reduce the likelihood of a margin call.
The first is appropriate position sizing. Risking a small percentage of the account on any single trade (commonly 1% to 2%) limits how much equity can be lost on adverse moves. A trader who sizes positions to risk 1% per trade can endure many consecutive losses before equity falls enough to trigger a margin call. Calculating positions based on a defined risk-reward ratio and a fixed percentage of account equity is the standard discipline.
The second is stop loss discipline. Placing stop losses on every position caps the maximum loss per trade. Without stops, a position can move against the account indefinitely, eroding equity without any defined exit. Stop losses are the single most effective protection against margin calls.
The third is avoiding overleveraging the account. Opening many positions at once, or opening positions sized so that all the account’s free margin is committed, leaves no room for adverse moves on any single trade. Maintaining substantial free margin as a buffer is the simplest way to avoid margin call situations.
Monitoring equity and margin level throughout the trading session, particularly during news events and high-volatility periods, allows the trader to act before margin levels approach critical thresholds.
Frequently Asked Questions
What is a margin call in forex? A margin call is a notification from the broker that the account’s margin level has fallen to a defined threshold, typically 100%, meaning the equity equals the used margin and there is no free margin left to absorb further losses. The margin call itself does not close positions; it warns that positions are close to being force-closed if the situation continues.
Does a margin call close my trades automatically? No. The margin call is a notification. Trades are closed automatically only when the margin level falls further to the stop out threshold, which is typically 50% (lower than the margin call threshold). At that point, the broker begins closing positions starting with the largest floating loss.
Which trade gets closed first during a stop out? The position with the largest floating loss is typically closed first. Closing the largest losing position has the greatest effect on restoring margin level, since it reduces used margin most significantly. Closures continue until the margin level is back above the stop out threshold.
Can I prevent the broker from closing my positions? Once the stop out threshold is reached, the trader generally cannot prevent automatic closures. The only ways to avoid the stop out are to deposit additional funds to raise equity, close positions manually before the threshold is reached, or open offsetting positions to reduce overall exposure. After the stop out begins, the closures proceed automatically.
What is the ESMA margin close-out rule? For retail clients in the EU and UK, ESMA-regulated brokers must begin closing positions when the margin level falls to 50%. This is a regulatory requirement rather than a broker setting. ESMA also requires negative balance protection, meaning retail accounts cannot go below zero even if a stop out fails to execute at expected prices.
Will I owe money to the broker after a stop out? In most jurisdictions with retail protections (such as ESMA in the EU and ASIC in Australia), negative balance protection prevents the account from going below zero. The broker absorbs any deficit. In jurisdictions without such protection, a stop out that fails to execute at expected prices in fast markets can leave a small negative balance, which the trader may owe the broker.
How do I check my current margin level? The margin level is displayed at the bottom of the Trade tab in the MT4 Terminal window. It updates in real time as positions move. Watching this value, particularly when positions are in floating losses, is the simplest way to anticipate a margin call before it occurs.