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A question about live trading.....

  • #1
  • First Post: Edited Dec 18, 2011 2:37pm May 17, 2010 2:06pm | Edited Dec 18, 2011 2:37pm
I was reading a document the other day about the
risks involved when trading, and there was a statement
that said:

"the possibility exists that you could sustain a
total loss of all initially deposited margin funds and be
required to deposit additional funds to maintain your
position with the broker."

This makes perfect sense, but the last part of the
statement troubled me a bit.

"If you fail to meet any margin calls within the time
prescribed, your trading position may be liquidated and
you may be responsible for any resulting losses, including
amounts potentially more than your deposit."

Is this saying that if you deposited "x" amount into a
trading account and one of your trades went bad, the
broker can allow the trade to continue negatively in
excess of the amount in your account, and then hold you
responsible for the excess amount?

I didn't think this was possible, but now I'm concerned.

Thanks!
  • #2
  • May 17, 2010 2:53pm May 17, 2010 2:53pm
Let's say due to a losing position you are at a zero balance or slightly in the red just as news hits that sends your trade violently further against you.

That would be the additional potential loss you could incur.

Barring this type of event you would most likely would just sustain a minor loss (not considering starting account balance) should your broker have to close your trade due to no longer maintaining a sufficient margin amount.

Although I wouldn't be too concerned about this ever happening it is good to always remember that each trade has two possibilities. Many only look at the winning aspect and condemn others as being "so negative" if the L word is mentioned.
  • #3
  • May 18, 2010 8:13am May 18, 2010 8:13am
Quoting SunTrader
Let's say due to a losing position you are at a zero balance or slightly in the red just as news hits that sends your trade violently further against you.

That would be the additional potential loss you could incur.

Barring this type of event you would most likely would just sustain a minor loss (not considering starting account balance) should your broker have to close your trade due to no longer maintaining a sufficient margin amount.

Although I wouldn't be too concerned about this ever happening it is good to always remember that each trade...
Thanks for the reply SunTrader.

I had an idea that was how such a thing could occur, but wanted to get some feedback on the subject before I take the next step and go live.
  • #4
  • Last Post: May 18, 2010 8:27am May 18, 2010 8:27am
Quoting ArtfulDodger
I was reading a document the other day about the
risks involved when trading, and there was a statement
that said:

"the possibility exists that you could sustain a
total loss of all initially deposited margin funds and be
required to deposit additional funds to maintain your
position with the broker."

This makes perfect sense, but the last part of the
statement troubled me a bit.

"If you fail to meet any margin calls within the time
prescribed, your trading position may be liquidated and
[i]you...
You need to be aware, like SunTrader mentioned, news reports that dont get liquidated at either your margin point or even your SL point but provided you trade safely from the get go, have a sound risk management policy in place that utilises SL's whether they are hard or mental, and you do everything to preserve your capital then it should not come up.

Those who do get in the situation usually dont employ SL's or there SL's are rediculously large in proportion to their rewards, they use excessive risks etc so they leave themselves open to the negative capital reserves in such events.

If you trade sensibly then you should be able to run the race for longer.

Razor
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