Close out refers to the forced termination of a trading position, typically due to margin calls, risk management requirements, or contractual obligations. This action may be initiated by brokers when accounts fall below minimum margin requirements or by traders implementing stop-loss orders. Close outs can occur automatically through system triggers or manually by risk management personnel.

Close out procedures are designed to limit losses and protect both traders and brokers from excessive risk exposure. In leveraged trading, positions may be closed out quickly if market movements create significant losses relative to account equity. Understanding close out policies and maintaining adequate margin is crucial for leveraged trading strategies.

Real-world example: A forex trader’s EUR/USD position is automatically closed out when account equity falls below required margin levels, preventing further losses but realizing a $5,000 loss on the forced liquidation.