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What Is 'Stop Out'? Why Does It Occur? And How Can It Be Prevented?

What is a ‘Stop Out’?

When a position or positions are forced closed when the account’s margin to equity ratio reaches a certain percentage (50%). This is often referred to as “being stopped out” or “positions being auto-liquidated”.

 

When will a ‘Stop Out’ occur at Valutrades?

Stop Outs occur on your account when the ratio between your equity and your required margin falls to 50% or below (if your equity is half the value of your required margin). When this happens, your positions will be automatically closed starting with the biggest losing position first, until the ratio between your equity and your used margin on your account rises to a sustainable level.

 

Why does a ‘Stop Out’ occur?

Stop Outs are in place to minimize losses on your account and because you no longer have the adequate margin in place to support your open position.

 

Is there anything in place at Valutrades to avoid a ‘Stop Out’?

At Valutrades we have a margin call on accounts when the ratio between your equity and your required margin is 100% (if your equity falls to the same amount as the required margin).

This is an indicator that will show up on your account to alert you that your margin level is 100% and that your account is under margin call.

When margin call happens you should either deposit more funds or begin closing some positions to avoid being stopped out and to free up margin.

 

How can traders prevent a ‘Margin Call' and a 'Stop Out’?

A good way to have control over your losses and avoid margin calls and stop out is to set a Stop Loss on your trading account.

A Stop Loss will automatically close your trade at a predefined a level that you have chosen. You can place this at percentages beneath or above the current market price; for example, 20% below the current market price.

Please see article: How Do I Set a 'Stop Loss' Level and 'Take Profit' Level On My Trading Account?

 

If you have any additional questions about this topic, please contact our support team by live chat, email (support@valutrades.com) or phone (+442031410888).