Question on buying and selling currency pairs

Hello…

I’m kind of new to Forex (and Baby Pips in general) and I have a question:

In the section on “Know when to buy and sell a currency pair”, the following example is given:

[I]“You open one standard lot (100,000 units GBP/USD), buying with the British pound at 2% margin and wait for the exchange rate to climb. When you buy one lot (100,000 units) of GBP/USD at a price of [B]1.50000[/B], you are buying 100,000 pounds, which is [B]worth US$150,000[/B] (100,000 units of GBP * 1.50000).If the margin requirement was [B]2%[/B], then [B]US$3,000 would be set aside in your account[/B] to open up the trade (US$150,000 * 2%). You now control 100,000 pounds with just US$3,000.”[/I]

It then goes on to say…

[I]“Your predictions come true and you decide to sell. You [B]close the position at 1.50500. You earn about $500.[/B]”[/I]

Which is all fine and well, but let’s say your prediction is [B]wrong[/B] and instead of the position going up to 1.5050… it [B]falls[/B] to say… [B]0.5000[/B].

What happens then?

So, is your position is now worth $50,000 and now, not only will you lose the $3,000.00 margin you set aside, will you also have to find a way to pay back the broker [I]the difference of $147,000[/I]?

Is this correct? Am I correct in saying that you can actually lose more (even [I]a lot more[/I]) than you put in (kind of like shorting stocks)?

Thanks.

Your broker will have a margin call level which would close the trade way before then. It varies from broker to broker but most are between 25 and 50%