Spotware Systems announces a brand new Stop Out Algorithm for cTrader.
Spotware Systems has announced that it has revised the Stop Out algorithm used by their cTrader platforms. This new functionality is being branded as Smart Stop Out.
Spotware Systems has announced that it has revised the Stop Out algorithm used by their cTrader platforms. This new functionality is being branded as Smart Stop Out.
This new Stop Out behavior adds significantly more protection to traders in contrast to what is typically used by other popular platforms. When a trader’s margin level falls below Stop Out level, positions will need to be adjusted to free up margin. The vital part is the method used to do this. cTrader now partially closes positions as opposed to closing them entirely.
When Stop Out level is reached the platform will partially close positions in increments of 1,000 units in the case of Forex pairs until the margin used reduces enough for margin level to become higher than Smart Stop Out level. The logic doesn’t necessarily target losing positions either. The algorithm begins by partially closing the largest position since this uses the most margin. For spot metals, commodities, indices, equities and other CFDs the lowest possible increment for the instrument will be used as a basis for closing the position.
“Our new Smart Stop Out algorithm is one of this year’s most exciting under-the-hood changes for every trader. The major differentiator from our previous Fair Stop Out algorithm is that positions are partially closed, this prevents traders from losing their entry points, which is very important in case market prices change direction, allowing the trader to later close the position with a smaller loss or even in profit.” – James Glyde, Head of Business Development, Spotware Systems.
It was in December of 2014 when the company announced their Fair Stop Out algorithm which was also designed to work in the favor of traders, and to help protect their account. As part of the company’s determination to inspire equality within the industry.
Smart Stop Out
The Smart Stop Out logic in cTrader has been designed to provide maximum protection to trader’s accounts. This logic will replace cTrader’s Fair Stop Out logic because it provides significant benefits for users by using 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 logic of Smart Stop Out 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.
Stop Out levels exist to prevent traders from falling into debt with their broker, if trading margin falls below Stop Out level then brokers will begin closing their clients positions.
An Example
If an account has the following properties:
Balance: $500
Leverage: 1:500
Smart Stop Out: 50%
Equity: $500
If the 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 USD/JPY = ¥2,500 (÷101.33 = $24.67) 10.2 [Pips] x $24.67 [Pip Value] = $251.63 Equity ($500 – $251.63 [Unrealized P&L] = $248.37) ÷ $500 [Margin Used] = 0.497 (x 100 = 49.7%) |
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, despite the loss it 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
| Calculation | $0.19736 [Pip Value of 2,000 USD/JPY] x 10.2 [Loss in Pips] = $2.01 |
Margin Used of 248,000 USD/JPY = $496
Unrealized P&L = $249.64
| Calculation | ¥1,000 [Pip Value of 100,000 USD/JPY] x 2.48 [Volume of open positions] = ¥2,480 x 10.2 [Loss in Pips] = ¥25,296 (÷101.33 [USD/JPY Rate] = $249.64) |
Equity = $248.35
| Calculation | $497.99 [Balance] – $249.64 [Unrealized P&L] = 248.35 |
Margin Level = 50.07%
| Calculation | 248.35 [Equity] ÷ 496 [Margin Used] = 0.507 x 100 x 50.07% |
Now 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.
