It took Denis Gromov a total of 4.5 hours so that on December 30, 2015, with a deposit of 5.5 million rubles, turn around 5,000 transactions totaling 42 billion rubles. The New Year for a private trader began unhappily: as a result of trading, Gromov not only lost his entire deposit, but also owed the broker 9.5 million rubles. After 1.5 years, the court put an end to the dispute: the trader did not take into account the requirements of margin and arbitrage trade, did not calculate his leverage, and therefore is obliged to repay the debt to the broker. This precedent took place in the currency exchange market and in Forex is impossible due to a margin stake and a stop out.
What is a stop out
At the time of opening a position, the broker freezes part of the trader’s money in accordance with the leverage chosen by the trader. Since quotes, especially for volatile currency pairs, can change at high speeds, the broker reserves a small margin for himself, closing the trader’s deals ahead of schedule. Margin call is the level (a certain amount of the deposit balance in%) at which the trader needs to urgently replenish the deposit. Stop out is the level of the deposit at which the broker forcibly closes all positions of the trader.
All the necessary numbers are reflected in the bottom of the MT4:
- balance – the amount that the trader contributed;
- funds – balance adjusted for profit or loss for current open positions;
- pledge – part of the deposit that the broker blocks and which cannot be used to open positions;
- free – the amount of actually free money at the disposal of the trader;
- level – an indicator of account status. As soon as its percentage value coincides with the broker’s stop-out level, positions will be closed.
Thus, the trader visually sees the situation on his account and can adjust the position. Stop out excludes the transition of the deposit to the negative zone. The only situation where a trader can remain owed to a broker is force majeure at the time of a closed session. For example, the collapse of currencies against the Swiss franc at the time of liquidation of the Central Bank of the ceiling rate. The session opened with a gap, traders not only lost deposits, but also went into the negative zone. In this situation, 99.9% of brokers compensate the trader’s debt at their own expense.
Calculate levels will help the table in Excel. It clearly shows at what rate for a given number of lots and the shoulder will come a stop out. In this case, with a stop out of 10%, the rate is 1.4414 (the position is open at 1.4600)
If the resistance level at a long position is below the course at which a stop out will occur (for this, you just need a table with formulas), you need to reduce the number of lots.
Conclusion: margin call and stop out are one of the main trading conditions that a trader should be aware of before trading. Not all brokers specify these parameters and it comes as a surprise to the trader when his positions are automatically closed if there is a positive balance on the account. Look for the stop out level in the offer or ask support questions.