Stopping out refers to the automatic closure of trading positions when stop loss levels are reached or margin requirements cannot be met. This forced liquidation helps limit losses and protect account equity but often occurs at unfavorable prices during volatile market conditions. Stopping out is a crucial risk management mechanism.

Stopping out can result from stop loss orders, margin calls, or broker risk management policies during extreme market moves. Understanding stopping out risks helps traders maintain adequate capital reserves and set appropriate position sizes to avoid forced liquidation during temporary market disruptions.

Real-world example: A leveraged forex trader gets stopped out of EUR/USD positions when rapid dollar strength triggers automatic position closure at stop loss levels, preventing further losses but realizing $5,000 loss on the forced liquidation.