Complete Newbie Margin Question

triplem · (#1 (**permalink**))

Please go easy on me fellas...here is my question. If I open an account with a forex broker and deposited $1000 with a margin of 100:1, and then I lost my entire $1000 balance, does that mean I'm on the hook to owe them $100,000?

Thx for your patience. Hope it's not too dumb of a question. :o

yako_yako · (#2 (**permalink**))

no you only lose wut you put in. So if you put in 1000 you lose 1000 no more.

iamarto · (#3 (**permalink**))

The 100:1 ratio is called Leverage

The idea of Leverage is very similar to how Gaz stations can lift up a car with a hydraulic machine. They don't have to put a super effort to lift a car, all they have to do is just little effort on the hydraulic lifter, and the effort is amplified lifting the car.

http://science.howstuffworks.com/hydraulic1.htm

But if you can make money easily, you can also lose money easily. As quoted from other sources "too much leverage could be dangerous to play with".

I suggest you go to babypips and read all the useful basic info there.

asdfg · (#4 (**permalink**))

Quote:

Originally Posted by triplem

Please go easy on me fellas...here is my question. If I open an account with a forex broker and deposited $1000 with a margin of 100:1, and then I lost my entire $1000 balance, does that mean I'm on the hook to owe them $100,000?

Thx for your patience. Hope it's not too dumb of a question. :o

You can put 1000$ and start trading from 100$(buy/sell 10000$ - input manually into FOREX Order window)

timinaz · (#5 (**permalink**))

Quote:

Originally Posted by yako_yako

no you only lose wut you put in. So if you put in 1000 you lose 1000 no more.

actually, you cannot lose your whole balance because the cost of your open positions is not included in your balance. if you start with $1000 and open 1 mini lot at 100:1 margin, your equity balance is $900 less the spread. if you lose $900 on that position, they will call your account and close your position, returning that $100 to your account (give or take a few points). at least thats how my account works.

obviously, losing $900 on 1 open mini lot is hard to do. the pair would have to move 900 pips aganst you to lose that much. the trouble comes when you have (too) many of positions open. each lot open will reduce your equity balance by $100, and each lot gains (or loses) it's own pip amount with each move. for example, you open 5 lots of gbpusd then your balance is now $500. if the pair moves 100 pips against you, your loss is $100 times 5, or $500, and you are busted. the broker closes your 5 lots and now your account is at $500 (the cost of opening those 5 lots)