This is not investment advice. The information provided is for educational and informational purposes only and does not constitute a recommendation to buy or sell any financial product.
The stop out price is the price at which a leveraged position is automatically closed by the broker to prevent the account equity from falling below the maintenance margin requirement. The mechanism is a safety valve designed to protect both the trader and the broker from a balance going negative, and it is the trader's last line of defence against a position going catastrophically wrong.
The stop out price is set by the maintenance margin, not by the trader. The trader who understands how the maintenance margin and the leverage figure combine to produce the stop out price is in a better position to size positions correctly and to avoid being stopped out by a normal market move.
What the maintenance margin means
The maintenance margin is the minimum equity the trader must hold in a leveraged position for the position to remain open. The figure is set by the broker (and sometimes by the regulator), and the figure is a percentage of the position's notional. A common maintenance margin for a stock CFD or a single-stock future is 25% of the notional.
The trader's equity in the position is the position's market value minus the loan. If the position's market value falls, the trader's equity falls. When the equity falls to the maintenance margin, the broker issues a margin call. If the trader does not add funds, the broker closes the position at the stop out price.
How the stop out price is calculated
The stop out price is the price at which the trader's equity equals the maintenance margin. For a long position: stop out price = entry price × (1 - (1 / leverage) + maintenance margin). For a short position: stop out price = entry price × (1 + (1 / leverage) - maintenance margin).
In concrete terms: a trader takes a 5× leveraged long position at €100. The maintenance margin is 25%. The stop out price is at approximately €99, or a 1% move against the position. The higher the leverage, the closer the stop out price is to the entry. A 10× position stops out at 97.5% of entry. A 20× position at 98.75%. The leverage dictates how much room the trader has.
What the trader controls
The trader controls the position size and the leverage. The broker controls the maintenance margin and the stop out price. The trader who chooses high leverage is choosing a stop out price close to the entry, which means a normal intraday move can trigger it.
The honest answer is to use a leverage that puts the stop out price well below the trader's intended stop. A trader who plans to use a 5% stop should choose a leverage that produces a stop out price 7-10% below entry, so the broker's mechanism does not fire before the strategy is invalidated.
How to avoid being stopped out
The first rule is to choose a leverage that gives a comfortable buffer between the entry and the stop out price. The second is to size the position to the risk budget, so a stop out is a recoverable event.
The third is to monitor the position. The trader who holds a leveraged position overnight or over a weekend is exposed to a gap that can move the price through the stop out level before the trader can react. The fix is to reduce the position size before a known risk window, or to close it entirely.
The fourth is to add funds proactively if the position is moving against the trader but the strategy is still valid. Adding funds before the maintenance margin is hit buys time for the strategy to play out, and the buy is usually cheaper than the loss from being stopped out and re-entering at a worse price.
Common questions about stop out prices
Is the stop out price the same for all brokers? No. Each broker sets its own maintenance margin, and the maintenance margin determines the stop out price. A broker with a 20% maintenance margin stops out later than a broker with a 30% margin, given the same leverage and entry.
Can the stop out price change while the position is open? The maintenance margin is set by the broker and can change at any time, especially in a fast market. If the broker raises the maintenance margin, the stop out price moves closer to the entry, and the trader may be stopped out on a normal intraday move.
What happens if the broker cannot close the position at the stop out price? In a fast market, the broker may close the position at a worse price than the stop out price. This is called slippage, and it is most common in volatile conditions. The trader should account for slippage when sizing the position, and the trader should use a stop loss order (not just the stop out mechanism) to control the exit.
Does a stop loss order override the stop out price? A stop loss order placed by the trader is executed before the stop out mechanism fires, provided the broker processes it in time. The trader's stop loss should be placed at a level that is inside the stop out boundary, so the trader's order fires before the broker's forced close.
Related resources
Where to start
If you are evaluating a leveraged position, the most useful features to check are the leverage offered, the maintenance margin requirement, and the resulting stop out price at your intended position size. Our broker comparison lists the leverage and margin terms at each broker, which together tell you what the stop out looks like before you take the position.