Negative Balance allowed if Equity positive?

Imagine you have an account with 100.000 USD and these 4 open orders, each with their current profit/loss:



The orders are offset hedged and as the price moved away a lot over time, each number grew so big.
Lots 40, around 20.000 USD margin per order.

The total profit would be +1000 USD. But how can we close these orders now ?
I developed the closure sequence below, but that only works if MT4 allows a negative balance .. ?

Not MT4 ... but your broker.

whether it is the mt4 terminal or if it is the broker, whatever, that is really splitting hairs a bit..

the real issue here is whether or not it is even possible to achieve having a negative balance at all..

i cant imagine how one would accomplish such a thing.

yes, you may quote me on this, cuz i cant see how you could pull it off.

zero/.

This is interesting

I can only tell you one thing:
Negative Balance with positive equity is indeed a reality and i have seen that with 2 (live) experimental acc's of mine on 2 different mt4 brokers.
Though surely it will depend upon some broker policies. Which broker is this?

(Why no other thing? bcoz i dont want to for some reasons)

Over n Out.

As FerruFX quite rightly said this has nothing to do with MT4 it's down to your broker. And of course they will let you go negative open a credit account give them a bank guarantee lots of options to avoid margin calls - if you brave enough.

one more fail for me.

oh my.

i phkd up trying to answer a hair splitting question about a trading scenario that is not likely to happen prior to jesus returning to manhattan.

i am betting jesus will return first before anybody reproduces this scenario on a live account.

and that is precisely why it didnt make sense to me.

no worries at all.

i say focus on realistic strategies that have a snails chance at least of ever working.

zero/.

Why not close the highest profit trade first?

still dont get it...how is this useful,after all a loss is a loss and profit remains to be profit

Hello all!

My name is Brad, and I work at FXCM. I had another though about how to exit this type of situation which may be of help. What if you were to close part of a hedged trade at a time, closing such a little amount that the realized loss would be offset by the freed-up margin?

For instance, the example above notes that there are 2 pairs traded, 40 lots (I assume 4,000K or 40.00) open exposure. If you were to close 10K (0.10) of the AUD/JPY buy, then 10K (0.10) of the AUD/JPY sell, the freed-up margin would probably offset the total realized loss on the 10K (0.10) trades, and hopefully avoid a margin call and/or negative balance. This could be modified to close 20K (0.20) at a time, or whatever you are comfortable with (or what avoids a margin call/negative balance).

Obviously this process would take time, but it may be more risky if someone closed one whole trade (40 lots) at once!

With regard to MT4, when a margin call occurs, it closes the largest dollar losing trade first. This (unfortunately) cannot be changed and can complicate things, especially when working on a US based account subject to FIFO regulations.

I would venture a guess that it is possible to have a negative balance, but it’s probably best to speak to your broker directly and ask those questions.

Hope this helps! Thanks for your time and best of luck trading to everyone!

Brad

There seems to be 2 issues here.
First issue is having a negative balance.
Well, if the intention is to close all 4 trades, to avoid a negative balance, close the trades that are in profit first.

The second issue is margin. In the example trades, the broker allows fully hedged positions with zero margin requirement.
So if one of the positions is closed, some of the free margin will be used.
Equity = balance + net profit on open positions (or - net loss).
This means that no matter which positions are closed, equity will always be $101,000
As I understand it, it is a necessary that equity, not balance exceeds the margin requirement.
As the maximum margin requirement is $40,000 with the trades, the $101,000 equity is more than enough to cover it

Great point about the margin requirement Gumrai, thank you!

I would still suggest that everyone check with their broker as to how they handle margin on hedged positions. The reason is that some brokers initiate a margin call when the equity reaches zero, while others when the balance reaches zero, or may require margin on a hedged position.

Regardless, this is probably one of those ‘knowledge is power’ situations.

Thanks and best of luck trading to all!

Brad

Well that surprises me, I stand corrected as I didn't realise that some brokers used the balance when deciding to initiate a margin call.
As I have only used MT4 for the last 3 or 4 years, I always see that free margin is linked to equity, not balance of account.
Prior to me trading exclusively with MT4, with non Mt4 brokers it was daily rollover type trades. Ie. my open trades were closed at mid price and new trades were also opened at mid price at the same time. This meant that every day at close of business, my equity was converted to balance. Maybe those brokers do base their margin on balance?

Right, exactly. That’s why it’s important to know how your broker does things! Some do the daily settlements, which, as you saw, close/reopen trades at the same price, whereas other brokers may not do that, meaning that you have the same ticket/deal number (rather than a new ticket/deal number every day).

As I understand it, MT4 functions virtually the same way at all brokers, the way it calculates margin, equity, balance, margin calls, etc. I should have been clearer that I was referring to other proprietary platforms rather than strictly MT4; sorry for the confusion!

Brad