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Can I lose everything?
- Thread starter jessieblue
- Start date
Quote from vhehn:
Risk Disclosure Statement
Margined Trading
Margined currency trading is an extremely risky form of investment and is only suitable for individuals and institutions capable of handling the potential losses it entails. An account with Capital Market Services LLC allows you to trade foreign currencies on a highly leveraged basis (up to about 400 times your account equity). The funds in an account that is being traded at maximum leverage may be completely lost if the position(s) held in the account experiences even a one percent swing in value. For example, if one chooses to leverage up to the maximum 400 times account equity, then a margin of $1,000 may control an investment of $400,000. While a 1% upward swing of the positions held in the account may multiply into a $4,000 profit, a 1% downward swing multiplies into a $4,000 loss, i.e. greater than the initial investment. Thus, an account could lose more than the equity it contains. Given the possibility of losing one's entire investment, speculation in the foreign exchange market should only be conducted with risk capital that, if lost, will not significantly affect the investorâs financial well-being.
Let me be more specific:
I plan to start with a miniacc on fxcm of about 700$. I will only risk about 2% on a single trade and place stops of max 20 pips. Am I in any danger here of ending up owing to fxcm more than 700$? What kind of market conditions would cause me to own them after a bad trade?
I live on the other side of the planet from them, would it be, under any circumstances possible for them to come to my country and execute my assets to cover any debt?
I own an appartment and that's all. I wouldn't enter the fx market if there is a slight chance I could lose it. Am I paranoied here? Anybody knows of a case where someone lost property because of a defficit in their fx account?
Futures traders are not protected against 'overloss' â Marketsurfer's example (p2) refers to overloss.
Since fx trades are being made 'in the fx broker's trading software', broker's can program against overloss occurring â as stated below.
NB: verify with individual brokers they do close positions and what amount they use.
" Margin Requirement:
Up to 200:1 Leverage: Clients must have approximately 1/2% of the value of the positions they hold in their account for each lot of currency being traded (approximately 200:1 leverage). This equates to $50 per lot (10,000 units). This amount does not change after 5:00 PM New York time, which is the rollover cut off, but stays constant at approximately 1/2% per lot the entire day and overnight.
Guaranteed Limited Risk: There is also an important safety feature imbedded in this system that prevents clients from losing more money than they have in the account. Should the account equity -- meaning the total floating value of the account -- fall below the margin requirement of approximately 1/2% per lot, the dealing desk will close all positions."
http://www.fxcm.com/mini-differences.jsp
Since fx trades are being made 'in the fx broker's trading software', broker's can program against overloss occurring â as stated below.
NB: verify with individual brokers they do close positions and what amount they use.
" Margin Requirement:
Up to 200:1 Leverage: Clients must have approximately 1/2% of the value of the positions they hold in their account for each lot of currency being traded (approximately 200:1 leverage). This equates to $50 per lot (10,000 units). This amount does not change after 5:00 PM New York time, which is the rollover cut off, but stays constant at approximately 1/2% per lot the entire day and overnight.
Guaranteed Limited Risk: There is also an important safety feature imbedded in this system that prevents clients from losing more money than they have in the account. Should the account equity -- meaning the total floating value of the account -- fall below the margin requirement of approximately 1/2% per lot, the dealing desk will close all positions."
http://www.fxcm.com/mini-differences.jsp
I was NEVER given any compensation, whatsoever, for anything I ever said on ET. I was NEVER given any compensation, whatsoever, for any effort to promote or to criticize the offering of any broker or any other company.
Any person who says different, like the one earlier in this thread, is a liar.
Any person who says different, like the one earlier in this thread, is a liar.
I have no comment here regarding any particular brokerage company, but I will refer you to the advice of CFTC:
Read more about it at:http://www.cftc.gov/opa/enf98/opaforexa15.htm
and even more at: www.cftc.gov
4. Don't Trade on Margin Unless You Understand What It Means
Margin trading can make you responsible for losses that greatly exceed the dollar amount you deposited.
Many currency traders ask customers to give them money, which they sometimes refer to as "margin," often sums in the range of $1,000 to $5,000. However, those amounts, which are relatively small in the currency markets, actually control far larger dollar amounts of trading, a fact that often is poorly explained to customers.
Don't trade on margin unless you fully understand what you are doing and are prepared to accept losses that exceed the margin amounts you paid.
Read more about it at:http://www.cftc.gov/opa/enf98/opaforexa15.htm
and even more at: www.cftc.gov
Seems everyone's forgot to mention that FXCM requires a $300 minimum initial deposit; with Oanda there is no minimum.
Quote from jessieblue:
Let me be more specific:
I plan to start with a miniacc on fxcm of about 700$. I will only risk about 2% on a single trade and place stops of max 20 pips. Am I in any danger here of ending up owing to fxcm more than 700$? What kind of market conditions would cause me to own them after a bad trade?
I live on the other side of the planet from them, would it be, under any circumstances possible for them to come to my country and execute my assets to cover any debt?
I own an appartment and that's all. I wouldn't enter the fx market if there is a slight chance I could lose it. Am I paranoied here? Anybody knows of a case where someone lost property because of a defficit in their fx account?
No, your apartment is safe. As I explained before it's the brokers money that's at risk. And it's not in brokers interests to let your losses extend beyond your collateral. That's why they require collateral from their clients to cover their losses. No collateral (or exhausted collateral) means no trading (no open position).
gkishot,
I'm a bit confused, and I was hoping you could explain this. You are saying that it is impossible to lose more than you deposit with an FX broker. I don't mean to suggest anything negative about FX brokers, but I did find this in the very first paragraph of the FXCM account agreement, and I was hoping you could explain what it means.
I was hoping you could explain what this means.
I'm a bit confused, and I was hoping you could explain this. You are saying that it is impossible to lose more than you deposit with an FX broker. I don't mean to suggest anything negative about FX brokers, but I did find this in the very first paragraph of the FXCM account agreement, and I was hoping you could explain what it means.
If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit.
I was hoping you could explain what this means.
Quote from jimrockford:
gkishot,
I'm a bit confused, and I was hoping you could explain this. You are saying that it is impossible to lose more than you deposit with an FX broker. I don't mean to suggest anything negative about FX brokers, but I did find this in the very first paragraph of the FXCM account agreement, and I was hoping you could explain what it means.
I was hoping you could explain what this means.
It's very unlikely situation. I don't know what exactly they mean. You should talk to them directly for the explanation. The only situation I can think of is when a currency has a gap in quotes against you. Then you might wind up owning more than your collateral. But again in order for you to own significantly more than your collateral it has to be very significant / huge gap in quotes. Which is very unlikely. Plus you are going to use on each trade only 2% of your account which makes your situtation even better in terms of safety. Besides you are going to use a stop loss which will provide you with additional safeguard. Once again it's not in their interests for you to have a loss which is much bigger than your collateral and they are going to do everything to prevent it - read to close your position ASAP. If they didn't do it realtime they sure should do it overnight. Otherwise they just suck in terms of managing their own risk. So basically the significant gap in quotes against your position is your only enemy but it's very very unlikely ( I would say 0 chance) in Forex.
I suggest you to open a demo account to get the feel of trading Forex and also to contact FXCM for additional explanations.
Quote from gkishot:
It's very unlikely situation. I don't know what exactly they mean. You should talk to them directly for the explanation. The only situation I can think of is when a currency has a gap in quotes against you. Then you might wind up owning more than your collateral. But again in order for you to own significantly more than your collateral it has to be very significant / huge gap in quotes. Which is very unlikely. Plus you are going to use on each trade only 2% of your account which makes your situtation even better in terms of safety. Besides you are going to use a stop loss which will provide you with additional safeguard. Once again it's not in their interests for you to have a loss which is much bigger than your collateral and they are going to do everything to prevent it - read to close your position ASAP. If they didn't do it realtime they sure should do it overnight. Otherwise they just suck in terms of managing their own risk. So basically the significant gap in quotes against your position is your only enemy but it's very very unlikely ( I would say 0 chance) in Forex.
I suggest you to open a demo account to get the feel of trading Forex and also to contact FXCM for additional explanations.
Well, this concerns me a bit, gkishot.
You say you do not understand the written account agreement, in regard to the danger of losing more than your initial investment. Yet you advised people that it is not possible, and then you said it is "very unlikely", then you said it is "very very unlikely", then you said "0 chance", which returns us to your original position that it is impossible.
Do you think perhaps it might not be a good idea for you to give this kind of advice, when you don't understand the written account agreement which appears to contradict your advice?