Ever come across trading with margin accounts? If so, you know the meaning of losing more than you deposited well in forex.
There are many types of accounts your broker may offer e.g. cash account for trading currency pairs and margin accounts.
In a cash account, you hold your currency for the long term, and there is no chance of losing more than your deposit.
But in a margin account, losing can exceed your deposit. Let’s see how this happens.
Read the quick answer to the question: forex trading can you lose more than initial investment?
Yes, you can if you trade with margin accounts. But there is no chance of losing more than an investment when you trade currency pairs on a cash account. In margin accounts, traders receive margin calls from brokers when they lose the amount equal to their initial investment. With this call, the trade stops automatically.
Expert traders always suggest doing your math first and invest the amount that you can afford to lose. Otherwise, you will end up quitting trade soon.
If you want to protect your money from losing, don’t forget to read 3 ways in this post below.
Can I Lose More Than I Invest In Forex
In margin trading, where leverage is high, you can lose more than you invested. The reason is that leverage explains the money you borrowed from the broker.
It can go up from 50:1 to 500:1. When you lose $1, it may cost you more than $100 with just a 1% margin. Because in margin accounts, forex currencies are sold in lots. Even opening one lot may cost you $100,000.
Margin accounts use high leverage. They have the ability to make huge profits dramatically or turn to zero even in a moment.
But there are certain ways to help out in losing all your investment in margin accounts. For example, you can set margin calls and stop-loss orders.
Can You Lose All Your Money In Forex
Unlike spot trading of crypto, in forex, you can lose all your money. There is a possibility that you may have nothing or zero balance in your account when you quit.
According to studies, about 90% of traders lose money. It’s a risky business that can wipe off your account balance.
That’s why it is advisable to invest the amount that you can afford to lose. If you invest more, you will have to take a loan.
It’s stressful to borrow money to continue with your trading account. Because of the risky nature of this money market, keep 20% of the money in your hand aside and invest the remaining 90%.
Can You Lose More Than You Deposit In Forex
Are you worried about the amount you may lose in forex? The question is can you lose more than you deposit in forex?
Yes, or NO both, It depends on your trading type and broker’s term and condition. In margin trading, it can happen. While in currency trading, where you hold the currency for the long term, you can’t lose more than you invested.
When traders borrow to buy on margins, they can lose more than they deposited. That’s why the balance of the trading account shows negative digits.
Be cautious when buying derivatives such as futures or contracts; they are riskier than currency trade.
3 Ways To Protect Your Account From Losing All Your Initial Investment
After all, losing and winning both are in your hand in forex. You can’t put the responsibility of your loss on anyone else.
Below are 3 helpful ways to follow if you want to protect your account from losing your initial investment:
Set Margin Calls
Fortunately, many brokers offer the feature of margin calls to protect the money you invested.
It will automatically close your trade when your loss becomes equal to the amount you invested. So, ask your broker about this feature and use it to stay alert about losing your whole investment.
Set Stop Loss
If you set a stop-loss order, your trade will close automatically to the point where you want it. Suppose you want a certain price level and you set a stop order there; your loss will never go beyond this limit. This way, you can save your investment.
Avoid High Leverage
If your broker offers you a 500:1 leverage position, you should never go for it. High leverage kills.
It not only increases the amount you lose dramatically, but it will also increase your % transaction cost. For beginners, it is not advisable to use more than 50:1 leverage.
How Do You Lose More Money Than Your Initial Investment
Losses can exceed deposits when you trade with a margin account.
This happens because you borrow money from your broker in this account. You are actually borrowing a loan with interest from your broker in the margin account. That’s why you may end up owing money from your broker if you lose.
In margin trading, your broker can stop your trade with a margin call when the amount you deposited balances your loss.
If you don’t receive margin calls from your broker, you will still have to pay back the debt to your broker. That’s why always read the terms and conditions of your broker thoroughly before opening an account.
Can You Lose More Than You Invest Trading212
Trading212 is a famous broker. You can invest in stocks and ETFs here with zero commission. Many traders love to know: can you lose more than you invest in trading212?
No, you will never lose more than your initial investment. The reason is that this broker offers a margin call feature to your margin account. Moreover, this broker follows the Negative Balance Protection Policy.
Under this policy, it will send you an alert when you have lost your deposited fund. Now it’s up to you to borrow money from your broker to continue trading or quit the account.
Thanks to margin calls, your trade will automatically close before going negative.
Can I Lose More Than My Margin?
Yes, you can lose more than you deposited when you use high leverage. At this time, your broker may give you a margin call or will close your trade automatically. To restart your trade, you will have to submit more funds or borrow funds from your broker.
Can You Go Into Debt Using Margin?
Yes, you can go into debt with a margin account. In this type of account, traders borrow money from brokers when they lose their funds. They use this money to continue trading to buy stock or derivatives.
Can You Go Into Debt With Forex?
Yes Or No both, depends on your broker’s term and condition and your account type. If you open a margin account, you can go into debt. In this account, you borrow money from your broker in the case you lost your deposited amount. But with a cash account, there is no chance of falling into debt.
Interestingly, you can lose more than your initial investment when you trade with margin accounts.
At this point, you may receive a margin call from your broker to submit funds or borrow from your broker. Your broker has the right to forcefully close your trade when you lose the amount you deposited before going negative.
Are you into trading margin accounts? WHats your experience then? Please write to us about how you managed to protect your money in the comment box below.