The margin level is the ratio of equity to the margin. Margin level is very important since brokers use it to determine whether the traders can take any new positions when they already have some positions. Different brokers have different limits for the margin level, but this limit is usually 100% with most of the brokers. This limit is called the Margin Call Level.
The formula is:
Margin Level %= (Equity / Margin) x 100
Our example: Margin Level= (986.54 / 233.28) x 100 = 422.91%
Margin Call Level
100% margin call level means if your account margin level reaches 100%, you can still close your open positions, but you cannot take any new positions. Indeed, 100% margin call level happens when your account equity, equals the required margin.
Stop Out Level
For example, when the stop out level is set to 5% by a broker, the system starts closing your losing positions automatically if your margin level reaches 5%. It starts closing from the biggest losing position first. Usually, closing one losing position will take the margin level higher than 5%, because it will release the required margin of that position, and so, the total used margin will go lower and therefore the margin level will go higher.
The reason why this limit is setup is that the broker cannot allow you to lose more than the money you have deposited in your account.