What Happens When Free Stock Margin Hits Zero?
What Happens When Free Margin Runs Out?
A trade stop out is when a trader's account free margin drops below the required indices margin level which is set by broker. This means that because free margin in trader's account has dropped below required stock indices margin level then the trader gets a stopout and some of the open trade transactions in trader's are closed by broker until this margin level goes back upto above required indices margin level.
Some of the open trade transactions may be closed or all of the open trade transactions may be closed-out if this stopout is automatically executed by broker.
What's Stock Margin Requirements Level?
Now if Your Leverage is 100:1
When trading if you have $1,000 dollars and use leverage of 100:1 & buy 1 standard lot for $100,000 your margin on this trade is $1000 in your account, this is the money that you'll lose is your open trade transaction moves against you the other $99,000 that's borrowed, broker will close-out the open trade transactions automatically using a StopOut once your $1,000 has been taken out by trading market.
But this is if your broker has set 0 % Indices Margin Requirements before stopping out your stock trades automatically using this Stop Out.
What's 20% Indices Margin Requirements Level?
For 20% indices margin requirement before liquidating your stock trades automatically using a Stop Out, then your trades will be closed once your trade account balance reaches $200 - at $200 you will get a stop out.
What's 50 % Margin Requirements Level?
For 50% requisite of this level before stopping out your stock trades automatically using a stopout, then your transactions will be closed once your account balance gets to $500 - at $500 you'll get a stop out.
What's 100 % Margin Requirements Level?
If the broker sets 100 % margin requirement of this level before stopping out your open transactions automatically using a Stop Out - at $1,000 you will get a stop out, then your stock trades will be closed once your account balance gets to $1,000: Meaning stock trade transactions will stop out as soon as you execute a one standard contract on this trading account because even if you pay 1 point spread your account balance will get to below $1,000 and needed indices margin requirement percentage is 100 % that's $1,000 dollars, therefore your orders will immediately get stopped out using a Stop Out once your margin requirement falls below 100 percent.
Most brokers do not set 100 Percent margin requirement, but there are those brokers that set 100 Percent margin aren't good for you at all, even those who set 50 percent margin requirement are still not good. Choose those set 20% indices margin requirements, in fact, those brokers that set at 20% Indices Margin Requirement are some of the best because the likelihood they close out your trade using a Stop Out is reduced as pictured in the above example.
To Learn & Know More about Leverage and Indices Margin - How to Read the Learn Indices Topics Below:
Stock Leverage and Indices Margin Explained
