If you have researched rules to avoid losses in trading, you must have heard of the concept of the Stop Out in Forex trading. In fact, this can be considered one of the necessary signals in Forex trading. Moreover, traders must always be careful to minimize the Stop Out problem in their trades.
So what is Stop Out? And how does it affect trading? Let's find out in this article!
Some other articles that you may refer to for minimizing Stop Out:
What is Stop Out?
In intense trading sessions, even experienced traders can make some mistakes while trading. Therefore, Stop Out will be used to prevent the accounts of traders from becoming worse.
Stop Out is one of the fears of many traders. More specifically, it automatically closes trading positions. Because the loss level has exceeded the allowable limit, and the account does not have enough capital to continue trading. Not only that, the Stop Out is irreversible, even the support team of the Forex brokers can not intervene.
In addition, the appearance of the Stop Out signal means that the trader's ability to manage capital and risk management is still not good. As a consequence, learning and improving management techniques in Forex trading will minimize the occurrence of Stop Out.
What is the Stop Out level?
Stop Out Level is the level based on a percentage set by the Broker. To be more precise, each broker will have different levels for Stop out to avoid traders losing money and their accounts being burned.
When the Margin Level falls below this threshold, it means that the investor's account is no longer enough to maintain open positions due to a lack of margin. In case, the trader does not deposit more capital or does not close the loss orders, the Stop Out event will be executed immediately.
Understanding Margin Call
In addition to the concept of Stop Out in trading, the definition of Margin call is also of interest to many traders. So what is a Margin call?
Margin Call is a term used in Forex trading to refer to the situation when an investor's trading account falls into a shortage of funds to maintain open positions. In fact, a Margin call is also the same phenomenon as Stop Out but only stops at a warning level.
When losses exceed the leverage limit, the brokers will send a Margin Call notification to the trader. At the same time, the Forex brokers will require the trader to deposit more money to ensure the maintenance of their open positions. If the trader does not have enough money to meet the Margin Call requirements, their account may reach the Stop Out level. Therefore, their open positions will be closed by the Forex broker.
How to calculate Stop Out
In fact, each forex broker will have different Stop Out level regulations, usually between 20 and 30%. In other words, if a trading account falls below this rate, a Stop Out order will be applied to that account.
There is a formula to calculate the Stop Out rate for a trading account that you can refer to:
Stop out = Equity/Margin
Equity: The amount remaining in your current account.
Margin: The amount of margin in the transactions executed.
By understanding this formula for calculating the Stop Out rate, you will know when the account will likely be Stop Out. From there, you can come up with different methods to avoid this phenomenon.
Ways to Improve Trading Techniques to Avoid Stop Out
When trading on the Forex market, all the traders try to avoid the Stop Out phenomenon on their trading accounts. To avoid stop out in Forex trading, traders need to use different techniques and approaches:
Take advantage of Trader's Guard at FXCE
Trader's Guard at FXCE is a feature that is developed to increase the discipline of traders. Through commitments to the system, traders can manage risks more closely and protect their capital well when the market is volatile. As a result, traders can trade with peace of mind and not worry about Stop Out.
With the extremely simple installation of Trader's Guard, traders can easily access FXCE's investment funds. In other words, FXCE can invest in trades that perform well in Trader's Guard.
Use stop loss
One of the most important techniques that traders use to manage their trading positions is the implementation of stop-loss orders.
There is no doubt that stop-loss orders are designed to limit the maximum loss that a trader can incur on a particular trade. Moreover, they are a crucial tool for minimizing risks and protecting investments for traders in the Forex market. By setting stop loss orders, traders can ensure that they do not lose too much money in case the market moves against them, and they can also help to prevent emotional trading decisions that can lead to large losses.
In addition to stopping loss orders, there are many other techniques that traders can use to manage their risk and protect their investments. Some of the techniques that traders can use to stop loss orders are diversification, position sizing, and risk management strategies. When using a combination of these techniques, traders can create a well-rounded trading plan that is designed to maximize profitability while minimizing risk.
Consider leverage ratio
Another helpful way to avoid Stop Out is to consider the leverage ratio. The leverage ratio is the proportion of funds provided by the broker compared to the trader's own funds. By increasing the leverage ratio, traders can minimize risks and increase profit opportunities. Nevertheless, it is important to use caution when adjusting the ratio as excessive leverage can lead to unwanted risks. Therefore, traders to carefully assess their financial situation and market conditions before adjusting their leverage ratio.
Improve market analysis skills
Another significant technique to avoid Stop Out is to perform careful market analysis so that traders can make more accurate trading decisions. In other words, traders should use technical tools and indicators to help predict the market more accurately and make smarter trading decisions. In addition, they also need to consider keeping up with current news and events that may affect the market.
Besides, staying informed about global trends and economic indicators is also necessary. It is also important to remain disciplined and patient in executing trades, rather than making impulsive decisions based on fear or greed. If traders follow these additional steps, they can improve their chances of success and reduce the risk of Stop Out.
Take advantage of other support tools
Using trading support tools is also a way to help traders monitor and manage trading situations effectively. Trading software and market reports can help minimise evaluation errors and help traders make decisions based on accurate information.
However, these solutions are only temporary ways to avoid Stop Out. To achieve sustainable profits in Forex trading, traders need to have a detailed trading plan, consider risks, and strictly adhere to trading discipline. The trading plan includes strategies for entering and exiting the market, expected levels of risk and profit, and other details related to Forex trading.
In addition, traders need to stay updated on market information and learn from other traders to improve their skills and experience. Continuous learning and practice are the keys to avoiding Stop Out and achieving sustainable profits in Forex trading.
In summary, traders do not want to Stop Out problems that will occur in their Forex trades. Basically, if their account is forced to Stop Out, they will have also lost a large investment. Moreover, they have to rebuild their trading strategy from scratch. Therefore, to avoid Stop Out, traders should have a specific plan and sufficient knowledge before participating in Forex trading.