hi everyone i’m new to this game and i’m understanding everything pretty well. theres just one thing [leverage] help? so let me get this right if i open a micro account with $1000 and loose. Can i loose more than i started with and owe money please help me get what’s going on:
You won’t really owe money.
Your free margin will get cleaned out, and your trade will close automatically, leaving only the amount of margin you used to buy into the trade with.
Not an ideal situation.
Say your trade margin was a standard lot of 250$.
You have 750$ of free margin.
The trade moves against you for 73 pips, and closes out. The first 2 pips were the spread.
That leaves you the initial 250$ you placed on the trade to work with.
Hi chris London,
When I have read your post, especially the part “i’m new to this game and i’m understanding everything pretty well. theres just one thing [leverage] help?” shivers went through my spine, and I have felt my spinal injury that I had 10 years ago. The question you have asked is an important question and I do not mean to be rude here but I think you need to go back to paper trading and learning more about the Forex market before you start trading real money.
Good luck and let me know if I can help.
Thanks for the advice guys! Just to let you know when i say im new to this game, I mean i am only training, reading books etc: Im no where near ready to put in my hard earned cash yet. Leverage is just one point that i need to clarify, i just want to make sure if the worsed case happens, will i only loose what i put in and no more?
Yes you won’t end up oweing the broker money, there is such a thing as a margin call where your broker will close out all your losing trades if your account gets critically close to a preset level which is I believe usually about 50% of your initial account opening deposit.
I am also new to forex and this will be my first post. I have been reading many threads in the background, but I thought I would post here to expand the debate.
I have been going through the babypips school and demoing what I have read to increase my understanding.
I too, have thought about leverage I understand the concept and know that a broker will close the account before you go into the red and owe them money. However I have been trying to find information comparing spread betting or trading via a broker.
On the babypips tutorial Trading Forex: How to Make Money in Forex Currency Trading
It has an example where you buy 1 lot of £100,000 of USD which is $150,000. (I assume that you have opened an account with £1000 and the leverage is 100:1). The price moves from 1.500 to 1.5050 so 50 pip gain.
Therefore you have made $500.
But if the price moved below 1.500 the account would be closed. (Am I correct?)
In terms of spread betting, if you put £1000 in an account, to make £500 from a 50 pip gain you would bet £10 a pip at a buy price of 1.5000 and once the price reached 1.5050 you would exit the trade and make a 50 pip gain thus £500. However with this situation if the market moved against you, you would have time to exit the trade.
I am unsure on which mechanism is better to trade with, are the same in terms of risk really, or have I got the concept of forex broker wrong?
I do know that spread betting is not allowed in some countries but in the UK it is legal and advantageous in terms of tax.
Any comments?