Could Leverage Wipe Out My Account?

I wonder nobody has clarified this wrong assumption yet. But NO: Margin has nothing to do with how much you can lose when you get stopped out. It doesn't matter if you pay $25, $250 or $750 Margin, if you close the Position no matter if by TP, SL, manually or even by "Margin Call", you will GET THE MARGIN BACK. Margin is just a "security" for the Broker to keep your position open. If the position is closed, the Margin is returned to your account.

I take two lines of best fit, one above and through the lows and one above and through the highs and then I take the distance between them in the middle of the area of correlation. If the chart is showing periods of congestion and then sharp moves it is a bit trickier, I look at the average that bar that moves against the spike during each break out and then multiply it by one and a half or two.

Look at Big News: https://www.forexfactory.com/showthread.php?t=811763

What can I say? I must be a chump!

Hi altleftshift,

Sorry, I didn't mean that. What's important is that you drew my attention to it and it made me think and be more careful. I also agree with you. In the beginning, until I establish myself, I will trade in small (small account, micro lots, optimal leverage and margin). However, I will be certainly open for more. Thanks for your reply.

A.

Hello mw108,

Do you mean that it is your Account that will drained and ALL you'll be left with is your Margin? Or do you mean that you can’t lose more than your Margin, but that money will be deducted from your Equity? I became extremely confused now.
I have two different examples below.

1st Example:
Account Balance: $2000
Position: Mini Lot (10,000 units)
Leverage: 50:1
Margin $200 (if the Euro is $1)
Margin Call level = 50%
Stop Out level = 20%

If I use half of my Margin (50%), my Equity will drop to $1900 and I will receive a Margin Call. And, if my Account Equity hits $1860 (20%), then I will be Stopped Out. So, all I lose is $140 (50%+20%=70%) from the Margin amount ($200). Is this right? It doesn't seem like it right now...

2nd Example:

Account Balance: $2000
Position: Mini Lot (10,000 units)
Leverage: 50:1
Margin $200 (if the Euro is $1)
Margin Call level = 50%
Stop Out level = 20%

If my Account drops to $1900 I will receive a Margin Call. If it drops $40 more, then I will be Stopped Out and all I will be left with in my Account is $60. This example now seems horrifyingly realistic.

So, which one of these examples is right? If the second one is right, I have been WRONG all along!!!! My aim up to now was to make money on my demo account and I have never known this side of practice trading. Now I will purposely drain my demo account to see which version is true!

cheers,
A.

Example:

1. You have a $1.000 account.
2. You open a position, 0.10 Lot Short EURUSD.
3. 1:30 Leverage.
4. You pay $385 Margin.
5. You put a 50 Pips SL.
6. Your SL is worth $50
7. Your SL gets hit.
8. Your account is now $950.

The Margin doesn't matter. It will not be deducted from your PnL (Profit and Loss). It is just a security for the Broker to keep your position open. If you close the position, you will get the deposit back. You will always get it back. No matter what. (We don't consider "Black Swan" events here now.)

Even if you get stopped out by the Broker due to "Margin Call." You will only realize your floating losses. Like if you trade without SL and your position is more than -$500, you get stopped out, lose the $500 but you will still get your $385 Margin back.

It is like you are going to rent a bike. The bike costs $10 / hour. But to rent the bike you have to give a $100 deposit. You rent the bike 3 hours and pay $30. But you get the $100 deposit back because you returned the bike.

Hope that helps.

Hi mw108,

So first, which of my examples is right, the first or the second one? It's important to me that you answer this question, because I have to make sense out of my confusion. Thanks.

Also, how come that I can lose $500 and won't get Stopped Out when I reach my Margin limit, which is $385? But hey! The rest of your examples/explanations are pretty clear to me!

Thanks for your response

P.S.
I thought my knowledge about Leverage/Margin is unshakable. Now, I feel the opposite.

A.

None of your examples is right. Thats why I gave a new. Since you are Canadian, we are not talking about ESMA regulations.

Margin levels are based on your total account balance. Not on the single position's Margin.

Going with your example:

Account Balance: $2,000
Position: Mini Lot (10,000 units)
Leverage: 50:1
Margin $200 (if the Euro is $1)
Margin Call level = 50%
Stop Out level = 20%

1. If you open the position, your Equity is $1,800 ($2,000 - $200). This means your Margin level is 900%. (Equity / Margin * 100)
2. To receive a Margin call (at 50% Margin level), the floating loss must exceed $1,700 (PnL = -$1.700). Or in other words: Your account's equity must drop to $100 left.
   1. $1,800 - $1,700 = $100 Equity; $100 / $200 * 100 = 50% Margin level.

3. To be stopped out, your floating loss must exceed $1,760 (PnL = -$1.760). Your account's equity must drop to $40 left.
   1. $1,800 - $1,760 = $40 Equity; $40 / $200 * 100 = 20% Margin level.

4. After being stopped out at 20% Margin level, you will have $240 left in your account.
   1. You get the $200 Margin back.
   2. You will lose $1,760 because of position's loss.

I wasn't suggesting that you called me a chump, I was calling myself a chump. I need to quickly multiply my equity by a factor of ten so I'm planning to break my risk management strategy in a big way and risk 70% of my capital on one trade.

Read my thread: https://www.forexfactory.com/showthread.php?t=811763

PS.

I have been lying, I have a habit of doing that on the internet.

I only started trading 3 weeks ago and I'm scalping night and day with $1,000, so far I have been up $270, down $190 and I'm currently $68 in front. It's fucking hard, I don't know if I have what it takes to make it. I don't have a house either, I am a rebellious white South African Islamic revert with Asperger's Syndrome and Agoraphobia. My Ghanaian fiance is coming to Australia next year and she is going to work (she is a nurse) and let me study Economics and ICT part time for eight years and raise a child or two to school age.

Sorry for not being straight to begin with, I have been embigifying myself into the dream me.

PPS.

The hammers and shooting stars really work but some would be hidden between two candles. I need a programming project and I'm thinking I might make a tool for an open source piece of charting software that finds every hammer and shooting star (even the ones that are hidden by the time scale) and draw an arrow on the top (or bottom) of the candle the moment a hidden shooting star (hammer) was detected with a number to indicate the relative volume. You would see a big correlation between the arrows and the pivot points.

Just a thought bubble.