I thought that by having 1:1 leverage one could never lose more than the margin (+ swaps/commissions) used in the trade (i.e. lose only your own money put in the trade). This I thought was almost impossible because it would mean the currency you buy in the trade would go to zero in the pair being traded. However, currently my loss for a buy trade of a crypto against USD almost doubles the margin I used in the trade even though the crypto has not lost half of the value yet since I started the trade, so I thought the loss should roughly be half of the margin. The trade was not closed because i have much more balance than the margin used in this trade. So, how can I be losing more than what I used as margin on the trade on a 1:1 leverage account?
1:1 leverage is not zero leverage you can open positions which size is roughly double of your account. Also if margin level drops below 50% broker can close your position, for the latest BTC crash I think they could make liquidation settings stricter.
I have used a margin of around 1600 USD, and my account is 25000 USD, so my margin level is not an issue at all. If i understood leverage correctly, in case the crypto went to zero i should be losing just the margin (1600 USD) because the leverage is 1:1. So my question remains, how can I be losing 2500 USD on a buy trade, which is much more than what I used as margin, on a 1:1 leverage account?
Because the total amount of your account funds is greater than your margin
, which means you can afford more losses.
It’s the same as if you make more profit than your margin
“It’s the same as if you make more profit than your margin “
No, it is not the same, I will put a simple example: Lets say 1 BTC = 1 USD (around 2011). Because my leverage is 1:1, in order to buy 1 BTC I would use 1 USD of my own money as margin. If BTC loses half its value and goes to 0.5 USD, then I am losing 0.5 USD. If BTC goes to zero then I am losing 1 USD, i.e. I am losing all my margin. But BTC would need to go negative to keep losing money, which is not possible, so it does not make sense that, in my current trade, the crypto has lost less than half its value since I bought it, yet my loss is much bigger than my margin.
On the contrary, BTC could go up and be worth 20000 USD, like it is today, and then my profit would be much higher than my margin.
Of course there is a way to keep your r:r at 1:1, but also to increase your profit potential without raising your capital risk, which is to pyramid your position when it reaches the x 1 TP, instead of closing the position. remember to move the SL on the original trade to its entry price level. Keep doing this as long as price keeps moving in your direction.
