Question: How do I avoid a Stop Out (Margin Call) on Forex trading accounts?
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On AAAFX’s trading accounts, the level at which a Stop-Out will be triggered in your account is the 50% of the margin requirement; e.g. if the margin requirement is 1,000$ and the equity of the account reaches 500$ then all of the open positions will be closed automatically.
AAAFx will issue a Margin Call when your equity reaches the 100% of the margin requirement and notify you by e-mail in order for you to take imminent action to prevent a Stop-Out.
How do I avoid a Stop Out (Margin Call)?
There are many ways to prevent from Stop Out and Margin Call happening.
While there is no absolute way to avoid them 100%, here are some things that you can do.
Sufficient Margin
In general, in order to avoid a Stop Out you should make sure you always have sufficient margin to maintain your current positions open and withstand their potential drawdown.
As long as your equity is more than 50% of the margin used for your currently open positions, a Stop-Out will not occur in your account.
Please note that you may monitor your Margin Level from your MT4 at any time; the higher the percentage of your Margin Level, the less likely you are to have a Stop Out.
Please note that AAAFx will issue a Margin Call when your equity reaches 100% of the margin requirement and notify you by e-mail in order for you to take imminent action to prevent a Stop-Out.
Moreover, at 100% Margin Level the information line at the Terminal of your MT4 account will be highlighted from gray to red.
Closing Open Positions
A quick way to increase your Margin Level and reduce your chances of a Stop-Out is to close out some positions, so that the margin that was used to open them will be released back into your Equity.
Fund Increase
Another way of avoiding over-exposure, increasing your Margin Level and thus reducing your chance of a Stop-Out is by depositing more funds.
You may use the Instant Deposit method to make immediate capital installations to your account.
To do this, simply visit the Funds tab under your Client Login section.
Avoid Over-leveraging
Another factor that may put your account at the risk of a Stop-Out is over-leveraging.
Using more leverage can potentially magnify your gains, but it can also magnify losses which will quickly deplete your usable margin.
The more leverage you use, the faster your losses may accumulate.
When you use excessive leverage, the fact that your account has more trading potential may easily lead you to overexpose it and thus cause you losses.
To clearly see how this may happen, consider the following example:
Trader A has an account with $500 equity and uses a leverage of 200:1,while Trader B has an account with $500 and 100:1 leverage.
Trader A can trade up to 100,000 currency units and decides to trade 60% of his capital, so he opens 6 trades of 0.1 standard lots each (total of $60,000), and thus uses $300 of the margin ($50 x 0.6 lots) retaining $200 more as free margin.
Every pip moving in this trade size is equal to $1, so if all open trades reach a low of 150 pips (loss of approximately 24 pips each trade), his Equity will be $150.
When that happens, his margin level will be 50% (150/300), and hence a Stop Out will occur and close all open trades in his account.
Trader B on the other hand can trade up to 50,000 currency units and decides to trade 60% of his capital. As in this case a 0.1 standard lot requires $100 margin, half of the capital is adequate for 3 trades of 0.1 standard lot each (total of $30,000).
Again, every pip moving in this trade size is equal to $1, so if all open trades reach a low of 48 pips, the total low will be 144, hence his Equity will be 356.
When that happens, his margin level will be 118% (356/300) so he will not be in danger of a Stop Out.
| Trader A | Trader B | |
|---|---|---|
| Capital | $500 | $500 |
| Leverage | 200:1 | 100:1 |
| Total Value of transaction | $60,000 | $30,000 |
| % of Trading Capital Invested | 60% | 60% |
| % Loss of Trading Capital | 58% | 28% |
In conclusion leverage is a tool that can enlarge your profits or losses by the same magnitude; the greater the amount of leverage on capital you apply, the higher the risk that you assume.
AAAFx provides Negative balance protection
AAAFx operates on a ‘negative balance protection’ basis which means that the client cannot lose more than his/her overall invested capital (deposit).
AAAFx determines at its sole discretion and in good faith, that the occurrence of such negative balance is not due to any malicious or abusive behavior of the Customer and has not been intentionally caused by the Customer.
