An account holds $10,000. The trader buys one standard lot of EURUSD, 100,000 units of notional, on 1:100 leverage. The broker locks $1,000 as margin, and from that second the platform shows four numbers most people never look at: balance, equity, margin and free margin. Every margin call, and every forced liquidation that follows one, is plain arithmetic on those four numbers. Nothing mysterious happens at a stop out. The maths simply ran out.
The four numbers on every platform
Balance is settled cash: deposits, withdrawals and the results of closed trades. It does not move while a position is open. Equity is balance plus the floating profit or loss of everything currently open, so it moves with every tick. Margin is the collateral the broker has locked against open positions. Free margin is equity minus margin: the room left to open new trades or to absorb losses. The fifth figure, margin level, is equity divided by margin, shown as a percentage, and it is the one the broker's risk engine actually watches.
| Number | Formula | What it tells you |
|---|---|---|
| Balance | Cash from closed activity | History, nothing about open risk |
| Equity | Balance + floating P&L | What the account is worth right now |
| Margin | Sum of locked collateral | What the broker is holding against positions |
| Free margin | Equity - margin | Room left before trouble |
| Margin level | Equity / margin x 100 | Distance to the margin call and stop out |
How the margin on a position is computed
Required margin is notional value divided by leverage, converted into the account currency. One lot of EURUSD at 1.0850 is $108,500 of notional; at 1:100 that is $1,085 of margin on a USD account. On a EUR account the same position needs a conversion at the current rate. Symbols carry their own requirements: gold and indices usually demand more margin than major FX pairs, and regulated brokers apply the caps their regime sets per asset class. If the platform shows a bigger margin figure than you expected, the cause is nearly always the symbol's own requirement or a conversion, and the general mechanics are covered in our guide to how leverage works.
The important consequence: margin is fixed at entry, while equity floats. A position that goes against you does not increase margin. It drains equity, which drains free margin, which pushes margin level down towards the thresholds.
The margin call, then the stop out
Brokers run two thresholds. The margin call level, often set at 100%, is the warning: equity has fallen to the size of the locked margin, new positions are blocked, and the platform starts shouting. The stop out level sits lower. When margin level touches it, the risk engine begins closing positions without asking, and most platforms start with the largest losing position, repeating until margin level recovers above the threshold.
Where the stop out sits depends on the regime. EU and UK retail accounts must be closed out at 50% of required margin, a rule in force since the 2018 product intervention. Offshore brokers publish their own levels, frequently lower. A lower stop out sounds generous. In practice it means the engine lets the account fall further before acting, so what survives the liquidation is smaller.
Why it happens at the worst moment
Stop outs cluster around volatile events, and not only because prices move. The floating loss is marked against the price you can actually exit at, so when spreads widen the marked loss deepens even if the mid price barely moved. The nightly rollover around 5pm New York is notorious for this, and the mechanics are laid out in our piece on rollover spread widening. Correlated positions make it worse: three EUR pairs open at once draw on the same free margin and tend to fall together, so an account that looked diversified behaves like one oversized trade.
A margin call is not a safety net. In a fast market or across a weekend gap, price can jump straight past the stop out level, and the account can be negative before the engine closes anything. Negative balance protection, where your jurisdiction provides it, is the only real backstop.
Keeping free equity healthy
The clean way to stay away from all of this is to size positions from risk, never from available margin. Decide the cash loss you accept if the stop is hit, derive the lot size from the stop distance, and margin looks after itself; the arithmetic is in our guide to lots and position sizing. A personal floor on margin level helps too: a trader who treats 500% as their own margin call will never meet the broker's. And a hard stop on every position converts an open-ended equity drain into a known number, which is the core of basic risk management.
Trading on margin is high-risk by construction. The four numbers do not make it safe. They make it measurable, and measured risk is the only kind a trader can actually manage.
"Most blown accounts never had a margin problem until the day they had ten positions open. Free margin is the distance to the cliff edge, and almost nobody drives watching it."
— Alex Onta, Executive Director, SINGUARD
Key Takeaways
- Equity moves with every tick; balance only changes when a trade closes.
- Margin level, equity divided by locked margin, is the number the risk engine watches.
- EU and UK retail accounts are closed out at a 50% margin level; other regimes set their own, often lower.
- Size positions from risk per trade, not from available margin, and free margin takes care of itself.
Frequently Asked Questions
What is the difference between balance and equity?
Balance is settled cash: deposits, withdrawals and the results of closed trades. Equity is balance plus the floating profit or loss of every open position, so it moves with each tick. The broker's risk engine works from equity, never from balance.
At what margin level do brokers close positions?
EU and UK retail accounts must be closed out when margin level falls to 50% of the required margin. Outside those regimes the stop out is set by the broker and is often lower, commonly somewhere between 20% and 50%. The exact figure is in the account terms.
Can a trading account go negative?
Yes, if price gaps past the stop out before the engine can close positions, for example over a weekend. Retail clients of EU, UK and Australian regulated brokers have negative balance protection, so the broker absorbs the shortfall. Elsewhere it depends on the broker's terms.