First, margin level
Margin level = Equity ÷ Used margin × 100
It's the figure brokers use to decide when to warn you and when to close your trades. The more your open trades lose, the lower your equity and the lower your margin level. Opening more trades lowers it too, because used margin goes up.
Margin call: the warning
When the margin level falls to your broker's margin call level, often around 100%, the platform warns you. At most brokers nothing is closed at this point, and at a 100% margin level your free margin is zero, so you can't open new positions anyway. It's a signal to reduce size or add funds.
Stop out: the broker steps in
If the margin level keeps falling to the stop out level, often around 50% and at some brokers lower, the platform starts closing your positions, usually the one with the biggest loss first, until the margin level recovers. Your broker publishes both levels, usually on its website or in your account details.
Drawdown limit: the prop firm's rule
Prop firms add their own limits on top of the broker's: a daily loss limit and a maximum loss limit. Break one and the account is usually closed or fails, whatever the margin level says. Margin vs drawdown explains how these limits are measured.
Which one comes first?
Take a $10,000 account with 1 lot of gold open at 4,200 and 1:100 leverage. Used margin is $4,200, and every $1 move is $100.
| Alarm | Trigger | Loss when it fires | Gold move against you |
|---|---|---|---|
| Daily loss limit (5%) | Equity $9,500 | $500 | $5 |
| Margin call (100% margin level) | Equity $4,200 | $5,800 | $58 |
| Stop out (50% margin level) | Equity $2,100 | $7,900 | $79 |
The prop firm's rule fires after a $5 move. The broker's margin call wouldn't come until $58. So on a funded account you'll almost never see a margin call. If you ever do, you've almost certainly broken the daily limit already. The 80% margin rule is a separate check again, on how much margin you use rather than how much you lose.
What about lower leverage?
Lower leverage brings the margin call closer, but the daily limit still wins on the same $10,000 account with a 5% daily limit:
| Position | Used margin | Daily limit hits after | Margin call after |
|---|---|---|---|
| 0.5 lot gold at 1:30 | $7,000 | a $10 move | a $60 move |
| 0.2 lot gold at 1:10 | $8,400 | a $25 move | an $80 move |
With a 100% margin call level and a 5% daily limit, the margin call can only come first if your trades use more than 95% of the account when you open them, because a 5% loss would then take equity below the used margin. At that point you've already broken any sensible margin rule.
How to stay clear of all three
- Size every trade from a stop loss and a fixed risk, as in how many lots to trade on a funded account.
- Know your daily loss room before the first trade of the day.
- Never rely on the stop out as your stop loss. By the time it fires, the damage is done.