Stop-out in gold trading

A stop-out is the forced closure of open positions when an account’s margin level drops to the platform’s stop-out threshold. Positions are typically closed one at a time, starting with the largest loss, until the margin level is back above the threshold or no positions remain. It is the platform protecting itself from an account going negative, not a risk-management service for the trader.

How it applies to gold trading

Continuing the margin-level example: $5,000 equity, 0.50 lots using $2,000 of margin, stop-out at 50%. An $80 move against the position produces a $4,000 loss; equity is $1,000 and margin level is 50%, so the platform closes the trade. The trader is left with $1,000, having lost 80% of the account on a 2% move in gold.

In fast markets the stop-out can execute at a worse price than the threshold implies, leaving even less. Some regulators require negative balance protection for retail clients so the account cannot fall below zero; others do not.

Because positions are closed in sequence, an account with several open gold trades may lose its largest loser first and keep smaller ones, leaving a confusing mix of positions after the event.

A common mistake

Relying on the stop-out as a de facto stop-loss. By the time a stop-out triggers, most of the account is gone. A stop-loss placed by the trader at a planned risk is a different thing entirely.

See also: Margin level, Margin call, Stop-loss, Risk of ruin.

Frequently asked questions