Stop out happens when your margin level reaches 0%, and the system automatically closes positions to prevent further losses. Since your leverage determines your margin, it plays a huge role in impacting stop out.
Leverage increases your buying power but also increases risk:
- Higher leverage: Requires a lower margin to open order. This means you can trade larger amounts with less money, but it also makes your orders more sensitive to market changes, increasing the risk of stop out.
- Lower leverage: Requires a higher margin to open an order. While it limits your buying power, it reduces sensitivity to market fluctuations, lowering the chance of a stop out.
Examples
Let us take a look at some examples to understand this better. Assume you have USD 100 in your account before you place the trades.
| Scenario | Account balance | Trade size | Required margin | Market moves - 1% | Equity after loss |
| High leverage 1:500 | USD 100 | 0.5 lots USDCHF | USD 100 | USD 500 | USD 0 |
| Low leverage 1:50 |
USD 100 | 0.05 lots USDCHF | USD 100 | USD 50 | USD 50 |
Higher leverage lets you trade a larger position, but a small market move can wipe out your account immediately since stop-out is triggered.
Lower leverage limits your position size, so you can survive small market swings without an instant stop-out.