I’m just conducting some research into Forex at the moment and have a question with regards to leverage. Now, I understand the way in which leverage works, but what I’d like to know is whether I become liable to pay back the leverage that I use. What I mean is this, if I use leverage to make my $1000 deposit worth $100,000, then do I become liable for a total debt of $100,000 if things go wrong.
I know this may sound like a stupid question, but I’m trying to understand as much as possible before I consider placing any sum of real money into an account.
No, you’ll never lose more money than you have in the forex account.
What will happen is that if you’re in a losing trade where the value of the loss becomes greater than the free margin in your account the broker will simply close your trade.
This is called a margin call and protects you from ever losing more than you have in your account.
Many Trader think like this, but obviously you will be liable. I am telling you the procedure, actually if your deposited money is $1000 ,and you initiate the trade of $100,000, and now you are in loss of $500, broker will not say to you anything ,but when your loss is going to reach $1000 ,before this broker will call you for margin ,and that would be margin call for you. why brokers doing this because many trader defaults after losing their initial margin ,and after this broker have to bear the losses of clients.
Thank you for your answers. Your help is most appreciated.
I’ve just found the guide on this website so I’m reading through that now. I’ve also opened a demo account so that I can practice on. Hopefully this will help make things clearer to me with regard to some of the other areas of Forex trading.
