What Are Margin Level, Margin Call and Stop-Out?

When leveraged positions move against a trader, account equity can decline.

Trading systems therefore monitor the relationship between equity and margin.

One common measure is known as margin level.

What is margin level?

A common calculation is:

Margin Level (%) = Equity ÷ Used Margin × 100

Suppose:

Equity = $2,000

Used Margin = $1,000

Margin Level:

$2,000 ÷ $1,000 × 100 = 200%

If open positions lose money and equity falls to:

$1,200

the margin level becomes:

$1,200 ÷ $1,000 × 100 = 120%

Why does margin level matter?

Margin level shows how much account equity remains relative to the margin supporting open positions.

As losses increase:

Equity decreases

↓

Free margin decreases

↓

Margin level decreases

Eventually, the account may reach thresholds established by the provider.

What is a margin call?

A margin call generally refers to a warning or account condition indicating that available equity has fallen relative to required margin.

Historically, this might have involved an actual phone call.

In modern electronic trading, it may simply be represented through the trading platform or account status.

The exact threshold depends on the applicable trading conditions.

What is stop-out?

A stop-out level is a threshold at which the trading system may begin automatically closing positions because the account no longer has sufficient equity relative to its margin requirements.

The exact methodology and threshold vary by provider, product and account.

Example

Suppose:

Balance: $5,000

Used Margin: $2,000

Open positions begin losing money.

If account equity falls significantly, the margin level declines.

If it reaches the applicable stop-out threshold, positions may begin closing automatically according to the relevant account rules.

Why leverage makes this important

Higher market exposure means market movements can affect account equity more quickly.

This makes the relationship between:

Position Size → Leverage → Margin → Equity

extremely important.

Leverage should therefore be understood as an exposure tool, not simply a way to open larger positions.