Automatic closure of open orders can occur in the case of:
1. Stop Out:
The most common cause of automatic settlement is a Stop Out. When the margin maintenance level of a trading account reaches the set Stop Out level, positions are automatically settled. By default, the Stop Out level is set to 0% for all account types, but you can customize it for your trading account.
The margin maintenance level is calculated using the following formula: (Equity ÷ Required Margin) × 100%
Let's consider an example of the Stop Out triggering. If you have multiple open orders, they will be settled in order of least profitability until the margin maintenance level goes above 0%.
For instance, if the equity in your trading account is $50, and the required margin is $10, the margin maintenance level will be 500% (50 ÷ 10 × 100%). The Stop Out will not be triggered as long as the margin maintenance level is above 0%.
As losses increase, the equity may decrease to $6, and the required margin is still $10. In this case, the margin maintenance level is 60% (6 ÷ 10 × 100%), and the trading account will receive a margin call. However, the Stop Out has not been triggered yet.
Further losses may reduce the equity to $1, while the required margin remains at $10. The margin maintenance level will be 10% (1 ÷ 10 × 100%), and the trading account will still receive a margin call. However, the Stop Out has not been triggered yet.
Finally, when the equity reaches $0, and the required margin is still $10, the margin maintenance level becomes 0% (0 ÷ 10 × 100%). At this point, the Stop Out is triggered, and the order is automatically settled.
2. Stop Loss (S/L) and Take Profit (T/P) orders being reached:
Stop Loss (S/L) and Take Profit (T/P) are types of limit orders that automatically settle the position when they reach the loss or profit level set by the trader. A Trailing Stop is a type of limit order that adjusts the S/L level as the order price updates. However, S/L and T/P orders will not be triggered unless the trader sets them for new or existing orders.
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