What does “Stop Out” mean and how to prevent it?

A Stop Out happens when your account equity falls to 30% of your used margin. If this occurs, your positions will be automatically closed to protect your account from further losses. The good news is, with careful management, you can easily avoid reaching this level.

What is a stop out?

A Stop Out is triggered when the equity in your account falls below 30% of your used margin. When this happens, the system will automatically close your most loss-making positions to stop further losses, protecting the rest of your funds.

Example of a stop out scenario:

Let's assume you balance of your account is  $1,000. Your opened a trade with $100 margin.

Now, let's say the market moves against you, and you have an unrealized loss of $500. So, your total equity in the account is now $500 (this includes the $100 margin you put up for the trade).

In this case:

• Used Margin = $100 (The amount of margin used for the trade)

• Equity = $500 (Your total funds in the account if you close the trade)

• Margin level = 500% ( $500/ $100)
  
  

Now, to find out when the Stop Out will trigger, we calculate 30% of your used margin:

• 30% of $100 (your used margin) = $30
  
  

This means that if your equity falls to $30 or below (total loss =  $970), a Stop Out will happen. The system will begin closing your positions to prevent further losses.

How to actively prevent a stop out:

1. Regularly monitor your margin:
    Keep an eye on your margin level, and don’t let it drop too low. You can view your margin level in your LBX terminal to stay informed of any risks.
   
   

2. Set Stop-Loss orders:
    A stop-loss helps to limit losses if the market moves against you. Always set a reasonable stop-loss level when entering trades.
   
   

3. Increase your account balance:
    To support your open positions, deposit more funds if you notice that your margin is decreasing, preventing a potential Stop Out.
   
   

4. Use appropriate leverage:
    While leverage can amplify profits, it can also increase the risk of Stop Out. Be mindful not to over-leverage and ensure you can handle any market fluctuations.
   
   

5. Diversify your positions:
    Avoid putting all your funds into one trade. Diversifying your positions can reduce the overall risk and prevent a Stop Out from affecting all your trades at once.
   
   

Additional tips to manage risk:

• Consider smaller trade sizes to help manage your margin more effectively.
  
  

• Monitor market volatility, as sudden price movements can put your margin under pressure.

By following these strategies and carefully managing your margin, you can minimize the risk of a Stop Out and protect your account.