Stop Out

A stop out is an automatic action executed by a trading platform or brokerage when a trader's margin level drops to a predefined critical percentage, aimed at protecting the account from incurring a negative balance due to continuing losses.

Upon reaching the stop out level, the platform automatically begins closing open positions—typically starting with the most unprofitable trade—and continues liquidating positions one by one until the margin level rises back above the specified critical threshold or all open positions are closed.

The stop out level varies from broker to broker and is usually set lower than the margin call level, providing the trader with prior warning through a margin call before reaching the actual forced liquidation stage.

This procedure acts as a dual-protection mechanism: it safeguards the trader against accumulating losses beyond their available capital, and it protects the brokerage from negative balance risks caused by losses exceeding the account equity.

A common mistake is relying on the stop out mechanism as a substitute for proactive risk management, as reaching this stage generally means suffering substantial losses that could have been avoided through proper position sizing and the use of stop-loss orders.