Is it possible to lose more money than you invest in Forex trading?
Marc B asked:
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.
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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.
July 14th, 2009 at 3:41 pm
i think it is, unlike stock your losses and gains are theoretically unlimited.
July 15th, 2009 at 2:34 am
It depends on whether you use margin purchases 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 purchase 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). Good luck paying that off.
July 17th, 2009 at 1:59 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.
July 19th, 2009 at 8:24 am
Almost 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.