What is stop out?
A stop out is the platform closing positions automatically once a loss threshold is reached. On a prop firm account it usually coincides with maximum drawdown and ends the account.
The term comes from retail brokerage, where it means the forced liquidation of an account whose margin has run out. At a prop firm it means something harsher.
What happens
When account equity reaches the defined threshold, the platform closes every open position automatically. There is no prior warning and no way to add margin: the account is not yours, and you cannot deposit into it.
In most cases that stop out coincides with maximum drawdown, so it closes the account for good.
Execution is not instant
This is the part traders discover too late. Between the threshold being crossed and the positions actually closing there is a delay — short, but real. In a fast market the fill can land well below the threshold level.
The consequence is counter-intuitive: the final balance can sit under the theoretical floor. It costs you nothing, since you never owe the firm money, but it explains why traders report a final loss larger than the limit advertised.
The trailing freeze as protection
Some firms freeze the stop-out threshold once the account has gained an amount equal to the drawdown. The floor then settles at the starting deposit: from that point the worst case is giving back profits, not losing the account.
It is one of the most trader-friendly clauses in the industry. It is not universal, and it is worth looking for explicitly in the terms and conditions before buying.
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Related terms
- Breach A breach is the violation of a risk rule that triggers a sanction on the account. Depending on the firm and the rule involved, it suspends the trading day, cancels a payout, or closes the account for good.
- Daily loss limit A daily loss limit is the maximum loss allowed on a single trading day. Separate from total drawdown, it resets each day and breaching it means, depending on the firm, the day is suspended or the account is closed.
- Drawdown Drawdown is the maximum loss allowed on a prop firm account before it is closed. It is expressed as a percentage or a fixed amount, and calculated under three models — static, end-of-day trailing or intraday trailing — with very different consequences.
- Equity Equity is the value of a trading account with open positions included, unlike balance which counts only closed trades. Most prop firms calculate their risk limits on equity.