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Is it possible to lose more money to your Forex broker ...

  • Post #1
  • Quote
  • First Post: Mar 16, 2010 4:06pm Mar 16, 2010 4:06pm
... than You Invest In Forex Trading like it happens in Futures?

Imagine if you had $30,000, borrowed $1,500,000, from the broker 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).

Which forex brokers offer a negative balance protection where they will automatically close your position once you reach a level low enough to bust out.
Quoting LaughingDicK
... than You Invest In Forex Trading like it happens in Futures?

Imagine if you had $30,000, borrowed $1,500,000, from the broker 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).

Which forex brokers offer a negative balance protection where they will automatically close your position once you reach a level low enough to bust out.
Your elaborated example is for stock brokers (and nowadys its only taught in finance books), you will never find a forex broker that will leave your account with a negative position they will liquidate your account when your 30k is consumed.
"Which forex brokers offer a negative balance protection where they will automatically close your position once you reach a level low enough to bust"
The answer is : They all do
Your example doesn't really make sense and shows you know nothing about forex. Your better off staying away until you study up on it.


Quoting LaughingDicK
... than You Invest In Forex Trading like it happens in Futures?

Imagine if you had $30,000, borrowed $1,500,000, from the broker 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).

Which forex brokers offer a negative balance protection where they will automatically close your position once you reach a level low enough to bust out.
I'm not 100% sure on this, but I think you can owe more in the case of a catastrophic event where stops get jumped because price drops so hard and fast where markets get overloaded (think 9/11 attack). Whether or not your broker will hold you to a negative balance is another matter.
Don't wish it were easier, wish you were better. ~ Jim Rohn
Of course you can end up with a negative balance (with fx, stocks or futures, doesn't really matter). And unless its explicitly precluded in the agreement, you have to pay it too. Its true that the broker will try to liquidate positions before negative equity is reached, but thats not always possible (fast market or tech problems).

I only know about oanda that states that you wont have to pay negative balances, probably some others too, you will have to go through the fineprint.

There are alot of horror stories swirling around internet forums regarding margin calls. Dont rely on your broker to liquidate positions for you, atleast place an emergency stop well above MC level.
Not possible to owe $120,000 on a $30,000 account
In any leveraged business we can end up losing more than the capital we have invested.

However, it is not in any broker interest that such thing happens.
Price would have to spike almost 800 pips in his example.... If you say so



Quoting Luso
In any leveraged business we can end up losing more than the capital we have invested.

However, it is not in any broker interest that such thing happens.
I was watching a Rob Booker webinar and he said that in Forex 90% of the times you will not lose more than you have in your account unlike futures.

I thought it was because the majority of the forex brokers are offshore and aren't complying with a regulator so they would have some legal difficulties making you pay more than you have in your account.

But probably it varies from broker to brokers i chated with a PFG representative and he said that you can lose more than your investement in futures and forex.

Maybe that is why they ask so many questions in the registration form about our job, if we have a house and how much is our income per year so they can have a credit guarantee if something crazy happens and if we don't pay them they can prosecute us to protect their lending rights.

Some Forex brokers advertise negative balance protection in their trading conditions.

https://www.fxpro.com/trading-conditions
You actually have to try and make that possible in forex. For example ; going in with max leverage seconds before NFP LOL



Quoting LaughingDicK
I was watching a Rob Booker webinar and he said that in Forex 90% of the times you will not lose more than you have in your account unlike futures.

I thought it was because the majority of the forex brokers are offshore and aren't complying with a regulator so they would have some legal difficulties making you pay more than you have in your account.

But probably it varies from broker to brokers i chated with a PFG representative and he said that you can lose more than your investement in futures and forex.

Maybe that is why they ask so...
  • Post #11
  • Quote
  • Edited 7:02pm May 17, 2011 6:50pm | Edited 7:02pm
Ditto Laughing Dick

I was just going through the application process with PFG and there is a Personal Guarantee section to the agreement. So, that is how I wound up here on this thread....trying to make some sense of what I was being told.

Ultimately, after considerable discussion with PFG, and persistent requests for explanation and examples, they advised me that, even though I was opening a corporate account for my LLC, that I would be PERSONALLY responsible for losses, even though acting as an agent of a legal entity...and that the risk in Forex and Futures is not limited to the account deposit, and that this is a requirement of the Dodd Frank Reform Act.

I cannot vouch for that, only that this is the basic explanation I received.

I do know that even before this Act, one broker, advised in their application that "Trading in FX Contracts is suitable for those sophisticated institutions and individual participants financially able to withstand losses which may SUBSTANTIALLY EXCEED THE VALUE OF MARGIN OR DEPOSITS."

That advisory, interestingly, immediately followed a warning that they offer no guarantees of the "credit worthiness" of the counter parties.

So, it seems to me, from this, that when you open an account for $10K...that is not your risk level...it may be substantially more than that...
I never saw that but theoretically possible. If you are over leveraged in week end & face a big unusual gap. That's why most brokers widen spread just before closing & some even lower leverage 1 hour before closing.

13
Brokers are angels
  • Post #13
  • Quote
  • Last Post: May 18, 2011 5:23am May 18, 2011 5:23am
Good morning FX13.

Since I ran across this issue I am pursuing it.

What is interesting is that I have yet to get any provider to give me a scenario where a trader might be liable in any amount over their margin or deposit, much less substantial amounts over it.

To date, the only suggested scenario was a technical failure in the platform which normally halted trading when margin levels were exceeded or the account reached 0.In this failure , the losses would keep accumulating past the account balance....literally a bottomless loss.

So, as i see this right now, potentially, when its advertised that "You can trade Forex for as little as $100" the fine print is "but you might have to sell your home to cover your losses."

Surely there is something I do not understand here, but I will not trade again until I understand it.

I would appreciate any insight you or someone else might have on this.
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