Meaning
This is one of those lines you only notice after it has already cost you money. Translation: if your margin level falls, the broker can close positions (sometimes without notice) to protect themselves.
Why it exists
The broker is the intermediary. If your account can go negative, the broker can be left holding the bag. Margin rules are their automated safety system.
How it hurts
- Stop-outs can occur during spread expansion or fast gaps.
- Positions may be closed in an order that is not optimal for you.
- Dynamic margin changes can shrink free margin instantly.
How to respond
- Keep a free-margin floor you never spend.
- Cap total heat across correlated positions (FX often becomes one macro bet in stress).
- Before events/weekends, reduce size so you cannot be liquidated by a single discontinuity.
Red flag
If you are routinely near stop-out, you are not trading. You are waiting for the broker’s risk engine to choose your exit.
Notes
Plain English: brokers have a close-out level. If your account equity drops to it, they can close positions automatically.
Why it matters: liquidation often happens in the worst conditions (high volatility, spread widening), so the exit price can be far from your plan.
Survival rule: when volatility expands, your risk budget must fall. If you keep size constant, your effective leverage rises.