Stop Out refers to the automatic closing of a trader's positions by the broker when the account's margin level falls below a certain threshold. This action is taken to prevent further losses that the account cannot cover and to protect both the trader and the broker from incurring negative balances. Here are the key points about Stop Out:
Margin level: The Stop Out level is defined as a specific percentage of the account's margin level, which is the ratio of the account equity to the used margin. If the account equity falls below this percentage, the Stop Out is triggered.
Automatic process: The Stop Out is executed automatically by the trading platform without any intervention from the trader. This is to ensure quick action to protect the account from going into a negative balance.
Priority of closure: In case the Account Margin Level is less or equal to the Stop Out Level, the system sends a Stop Out order(s) to close all opened deals. In the case a Stop Out order is cancelled by the execution venue and the Account Margin Level is still less or equal to Stop Out level, the system sends Stop Out order(s) again.
Risk management: The Stop Out mechanism is a risk management tool for both traders and brokers. It prevents traders from losing more money than they have in their account and minimizes the risk of the broker having to cover the losses.
Stop out levels: Stop Out levels are specified in the terms and conditions. Common stop out levels range from 20% to 50% of the margin level.
Notifications: The R StocksTrader client receives a daily statement with up-to-date information on all account changes, including deals closed through the automatic execution of Stop Out orders.