Stop out

In practice

With $5,000 used margin, the broker auto-closes positions when equity hits $2,500 (50%). A sudden news spike drops your equity to that line and your largest losing trade is liquidated at market — often at a worse price than your own stop would have used, because the broker closes at the first available bid.

Why it matters for traders

A stop out is forced liquidation, and it usually happens at the worst price of the move. The way to avoid ever testing it is to set your own deliberate stop losses far above the stop-out level, so you always exit on your plan rather than on the broker's survival mechanics.

Common pitfall

Traders assume their own stop will always save them and forget the broker's stop-out can fire first during a news spike, closing at a far worse price than planned. The pitfall is sizing positions so large that a normal adverse move brings you near the stop-out level. Keep your own deliberate stops far above that level and your used margin low, so you never hand control of exits to the broker's liquidation logic.

Lessons that use this term

• Margin call & stop out

  The two levels where the broker steps in — and why correct position sizing means you never meet either.

Related terms