How does Smart Stop Out in cTrader works?

The Smart Stop Out logic in cTrader provides maximum protection to trader’s accounts. This logic will replace cTrader’s Fair Stop Out logic because it uses a much more advanced algorithm.

If Margin Level, which is shown in the balance bar (see image below for references) falls below Smart Stop Out Level, then positions will start being closed until Margin Level reaches above Smart Stop Out.

The Smart Stop Out logic will only close what is absolutely necessary from the largest position in order to safely restore Margin Level and protect the position itself, the position entry point and the trading account for as long as possible.

An example how the Smart Stop Out functionality works:

Your account has the following properties:
Balance: $500
Leverage: 1:500
Smart Stop Out: 50%
Equity: $500

Your account opens two positions of:
BUY - 200,000 - USD/JPY
BUY - 50,000 - USD/JPY
Both positions have the same entry price.

The account will immediately be left with a 100% margin level. Once 100% margin level is reached, no more positions which require additional margin can be opened.

Once the price of USD/JPY falls by 10 Pips, the Margin Level will become 50% and will trigger the Smart Stop Out feature.

Calculation:
Pip value of 250,000 USDJPY: 2,500 JPY (24.67 USD)
Loss in Pips: 10.2
Unrealized P&L: 24.67 USD * 10.2 = 251.63 USD
Equity: 500 USD – 251.63 USD = 248.37 USD
Margin Level: 248.37 USD / 500 USD * 100% = 49.7%

Note: for simplicity's sake, we will not consider broker commissions and spread in this example in order to explain behavior of the Smart Stop Out functionality.

Once Smart Stop Out has been reached, cTrader will need to do something to restore the accounts Margin Level to be higher than Smart Stop Out. cTrader will partially close the largest position to release only the amount of margin necessary and nothing more, with the minor exception of rounding to the nearest 1,000 units.

In this case, the position of 200,000 USD/JPY will be modified to be 198,000 USD/JPY, by selling 2,000 USD/JPY.

Closing 2,000 USD/JPY at a loss of 10.2 Pips will cause a loss of $2.01. The loss reduces the amount of margin required to retain the position by $4. Below you will see how this event effects the account and the calculations used.

Balance: 497.99 USD

Calculation::
Pip value of 2,000 USDJPY: 0.19736 USD
Loss in Pips: 10.2
Loss: 0.19736 USD * 10.2 = 2.01 USD

Margin used of 248,000 USD/JPY: 496 USD
Unrealized P&L: 249.64 USD

Calculation:
Pip value of 100,000 USD/JPY: 1,000 JPY
Volume of open positions: 2.48 lots
Loss in Pips: 10.2

1,000 * 2.48 * 10.2 = 25,296 JPY

USDJPY rate: 101.33
Unrealized P&L: 25,296 JPY / 101.33 USDJPY = 249.64 USD

Equity = 248.35 USD

Calculation:
Balance: 497.99 USD
Unrealized P&L: 249.64 USD
Equity: 497.99 USD – 249.64 USD = 248.35 USD
Margin used: 496 USD

Margin Level = 248.35 USD / 496 USD = 50.07%

As a result, the account’s Margin Level has been increased to 50.07% which is just enough to be above Smart Stop Out Level with minimum impact on the trading account.

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