January 28, 2011
Is it possible to lose more money than you invest in Forex trading?
By Planet Wealth
They have those auto pilot programs that have you invest 50 dollars starting. Not a huge investment, and wont spit out a lot of money in the long run, but If you invested 50 dollars in a forex program, is it possible to end up owing more than you invested? Or is it just that you can lose 50 dollars and end up back at 0, and not in the negative? Just curious.
Topics: trading tips | 4 Comments »
4 Responses to “Is it possible to lose more money than you invest in Forex trading?”
Comments
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January 28th, 2011 at 5:37 pm
Nearly all forex brokers will offer you a negative balance protection where they will automatically close your position once you reach a level low enough to bust out. The reason they do this is because they will be liable for the money and may have a hard time recouping it from thousands of clients all over the world.
January 28th, 2011 at 5:37 pm
i reckon it is, unlike stock your losses and gains are theoretically unlimited.
January 28th, 2011 at 5:37 pm
It depends on whether you use margin buys or not, and on how much leverage you use from your margin.
Stock brokers typically offer 2 to 1 margin, if your account is of a certain size. That means if you have $30,000 in your account you can invest up to $60,000. Forex brokers typically offer something outrageous like a 50 to 1 margin, meaning (you guessed it) $30,000 can buy up to $1,500,000 worth of securities.
Margin trading is for very advanced, very experienced traders. I refuse to do it. Imagine if you had $30,000, invested $1,500,000, and sustained a 10% loss. You just lost $150,000. You only had $30,000 to start, so now you owe your broker $120,000 ($30,000 – $150,000 = -$120,000), and you owe any fees for borrowing on your margin (margin trading isn’t free). Excellent luck paying that off.
January 28th, 2011 at 5:37 pm
As the previous answers have noted, your investment in foreign exchange is always leveraged.
Your $50 investment will be leveraging about $5,000 of money, and if the tide turns against you, you could end up losing part, most or all of that $5,000. That’s 100 times your investment.
Unless you are pretty savvy about leverage and options, don’t try it. It is not for most people.