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What Happens When Your Free Trading Margin Gets To Zero?

What Happens When the Free Margin in Your Account is Negative?

A stop out happens when the extra money in a trader's account drops below the minimum amount needed, as set by the broker. This means that because the extra money in the trader's account is too low, the trader gets a stop-out. Then, the broker closes some of the trader's open trades until the extra money goes back above the minimum amount.

Some of the open trade transactions might be closed or all of the open trade transactions might be liquidated if this stop out is executed automatically by the online broker.

What's Margin Requirement Level?

Now if Your Leverage is 100:1

When conducting trades with an account balance of $1,000 and employing a 100:1 leverage ratio for a purchase, your margin for this specific transaction comprises the $1,000 in your trading account: this is the capital you stand to lose if your open position moves unfavorably. The remaining $99,000 is borrowed: the broker will automatically liquidate open trades via a Stop-Out mechanism once the market has consumed your entire $1,000 margin.

But this is if your online broker has set 0 % Margin Requirement before closing out your trade positions mechanically/automatically using this Stop Out.

What's 20 % Margin Requirement Level?

With a 20% margin rule, trades close automatically at stop out. This happens if your balance hits $200.

Understanding 50% Margin Level Requirements

If the required margin level before automatic trade closure via a stop-out mechanism is set at 50%, your positions will be liquidated once your account balance drops to $500 - a stop-out occurs precisely at the $500 mark.

What is 100% Margin Requirement Level?

If the online broker sets 100% margin prerequisite of this level before closing out your open trade transactions mechanically/automatically using a Stop Out - at $1,000 you will get a stop out, then your trade positions will be closed once your account balance drops to $1,000 dollars: Meaning the trade transactions will closeout as soon as you execute a one standard contract/lot on this account because even if you as a trader you pay $10 spread your trading account balance will get to below $1,000 & the needed margin requirement percentage is 100% that is $1,000, therefore your orders will immediately get closed using a Stop Out once your margin requirement falls below 100 %.

Most brokers avoid 100% margin rules. But those with 100% are not good for you. Even 50% ones fall short. Pick brokers with 20% margin. They rank among the best. They lower the chance of forced trade closes, as shown in the example.

For further knowledge regarding Financial Leverage and Margin requirements, consult the instructional material presented underneath:

Gold Leverage and margin made clear

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