Negative Balance Protection

This is a discussion on Negative Balance Protection within the Brokerages forums, part of the Commercial category; Originally Posted by itspossible he is paying exceptional attention to risk he can only lose whats in his account and ...

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Old Mar 1, 2016, 4:59pm   #9
 
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Originally Posted by itspossible View Post
he is paying exceptional attention to risk
he can only lose whats in his account and no more.
I do not trade CFDs because of the need for negative balance protection and here in the US we don't have to worry about stamp duty.

With equities and forex, you have to be pretty stupid to blow your account, unless you are foolish enough to use leverage and overexpose yourself.

If you have $5,000 in account you should be exposing the entire $5,000 much less overexposing it. If you use greater than 5:1 leverage on a $1,000 trade, you are overexposing your account.
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Old Mar 1, 2016, 5:04pm   #10
 
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so do you keep all of your risk capital in your trading account/s H?
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Old Mar 1, 2016, 6:35pm   #11
 
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Originally Posted by darktone View Post
so do you keep all of your risk capital in your trading account/s H?
Just to be clear about what we are considering as risk capital.

Quote:
Risk capital consists of investment funds allocated to speculative activity. Risk capital refers to funds used for high-risk, high-reward investments such as junior mining or emerging biotechnology stocks. Such capital can either earn spectacular returns over a period of time, or may dwindle to a fraction of the initial amount invested if several ventures prove unsuccessful.
Even though, I slightly disagree with this definition, by this definition I am undertaking more speculative activity than hedging activity. So, most of my capital involves risk capital. I do not really trade futures, options or CFDs as I consider them to involve solely pure risk as opposed to speculative risk.

I do frequently invest in the biotechnology sector. If you wanted to know how I trade you could always look at my journal.

Quote:
The main purpose of speculation, on the other hand, is to profit from betting on the direction in which an asset will be moving.
This definition describes my behavior in the markets well. I post a condition for which direction I think the market will move and if the condition is met, the trade is placed. I cannot understand trading one single financial instrument, as this inherently increases pure risk.
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Last edited by hhiusa; Mar 1, 2016 at 6:41pm.
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Old Mar 1, 2016, 7:20pm   #12
Joined Oct 2013
Hi hhiusa

I have to disagree with you - as you might guess - but rather than getting into another slanging match can I ask a few questions and points first

1. Am I correct in saying that not all American brokers use segregated accounts for the clients money ?

2. Lets say my capital account size today is approx $70k. With you only using leverage of 5:1 you would need to deposit $1,400,000 in your capital account to be able to have my stake buying power?. You might say I don't need that amount but a typical US trader on a maximum of 50:1 ( is it 20:1 on minor FX pairs) would need to have either $140k minimum in their account or even $350K to trade at my size on FX?

3. Black Swan events normally only happen a few times a decade - - so the maximum I would lose in the UK if suddenly say the EA dropped say 3000+ pips in 4 hrs is my whole account ie $7OK . An American trader could lose even on a lot less leverage even 20% of his account - that could still be more money then me

4, If you had say a $50k account in Europe with a negative balance protection - many traders would not have to go bankrupt or sell the house or all their assets. In the US if all goes pear shape can many retail traders afford to lose $200k -$500k and not have to sell all their other assets as no protection on their total capital account - and even worse what happens if the broker goes bust with all your money in a non - segregated account ?

5. Retail trading is totally different to Commercial Bank Trading . The US Banks convinced the US government to protect retail traders by reducing leverage dramatically. That was only because they wanted all traders to have to deposit more money into their "coffers" - and of course again the corrupt and devious banks won and the poor old US traders suffer.

I look forward to your reply to my questions and points

I am not being arrogant, rude or condescending in any way - so please point out how you see it - so I can understand or learn more on something I find very interesting why so many US traders have a deluded view on retail leverage

Regards


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Old Mar 1, 2016, 7:41pm   #13
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http://www.investopedia.com/articles...rage-forex.asp

I disagree with some of the points but will get around to my view maybe later on or tomorrow

I don't recommend really high leverage - unless you are very experienced with a small "throw away account" might be $200 might be $2k to some - and then with no negative balance guarantee then its the MAXIMUM YOU CAN LOSE.

If you can double or treble the capital over a week or month - then take the capital amount out - and do the same again - and again and again . If you are able to do it 3 or 5 times before you take it to far and blow your account - its possible to make massive gains with low risks.

Its controlled gambling - ie still use money management maybe go up to 5 or even 10% stake size of small capital - get leverage of t least 400 to 1 and rest assured - what ever happens - you cannot lose more than $200 or what ever capital you deposit.

For some experienced traders - its a separate account that they use just to take advantage of their so called very high probability trades - ie the AAA+++ ones that they feel are over 80+% certain to happen

What ever you do go for RR's over 3 if possible and for me always use soft or hard stops and take small losses and get on finding profitable trades rather than making 250 pips profit over a week with a hard stop of 200 pips - waste of time.

Don't even think about doing this on FX unless you are confident you have a trading history of over 2 or 3yrs showing you are consistent and profitable - whether its just 50% per annum or 300% + per annum ( non compounding results )

Again, I must repeat retail FX trading is a totally different ballgame to the commercial Hedge Funds/ bank trading - don't compare risk or leverage or ROR - you will be totally mislead


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Old Mar 1, 2016, 7:52pm   #14
 
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Quote:
Originally Posted by Forexmospherian View Post
Hi hhiusa

I have to disagree with you - as you might guess - but rather than getting into another slanging match can I ask a few questions and points first

1. Am I correct in saying that not all American brokers use segregated accounts for the clients money ?

2. Lets say my capital account size today is approx $70k. With you only using leverage of 5:1 you would need to deposit $1,400,000 in your capital account to be able to have my stake buying power?. You might say I don't need that amount but a typical US trader on a maximum of 50:1 ( is it 20:1 on minor FX pairs) would need to have either $140k minimum in their account or even $350K to trade at my size on FX?

3. Black Swan events normally only happen a few times a decade - - so the maximum I would lose in the UK if suddenly say the EA dropped say 3000+ pips in 4 hrs is my whole account ie $7OK . An American trader could lose even on a lot less leverage even 20% of his account - that could still be more money then me

4, If you had say a $50k account in Europe with a negative balance protection - many traders would not have to go bankrupt or sell the house or all their assets. In the US if all goes pear shape can many retail traders afford to lose $200k -$500k and not have to sell all their other assets as no protection on their total capital account - and even worse what happens if the broker goes bust with all your money in a non - segregated account ?

5. Retail trading is totally different to Commercial Bank Trading . The US Banks convinced the US government to protect retail traders by reducing leverage dramatically. That was only because they wanted all traders to have to deposit more money into their "coffers" - and of course again the corrupt and devious banks won and the poor old US traders suffer.

I look forward to your reply to my questions and points

I am not being arrogant, rude or condescending in any way - so please point out how you see it - so I can understand or learn more on something I find very interesting why so many US traders have a deluded view on retail leverage

Regards


F
I am busy at the moment so I will reply completely later. I would be happy to act civil if you are willing to do the same.

Saying you're not trying to be arrogant is pointless if you are still acting arrogant. I think it is arrogant and rude to say that all American traders are deluded concerning leverage. Do you have any proof to that effect.

You say that it would take some with $350,000 to trade your level. If you don't have $350,000 in cash you're not trading at that level either even if you are using leverage. Speaking of delusional that is delusional. If you only have $70,000 you should only be using $70,000.

If you were using 5 to 1 leverage with an account size of $70,000, how did you come to the figure of 1.4 million?

It also seems as though you did not fully comprehend what I posted. There should be no need for negative balance protection because you should not be trading with financial instruments that require it. Leverage is just going to compound that problem.

I swear the two most popular expressions on this forum are black swan event and blowing up your account.
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Old Mar 1, 2016, 8:16pm   #15
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Originally Posted by hhiusa View Post
I am busy at the moment so I will reply completely later. I would be happy to act civil if you are willing to do the same.

Saying you're not trying to be arrogant is pointless if you are still acting arrogant. I think it is arrogant and rude to say that all American traders are deluded concerning leverage. Do you have any proof to that effect.

You say that it would take some with $350,000 to trade your level. If you don't have $350,000 in cash you're not trading at that level either even if you are using leverage. Speaking of delusional that is delusional. If you only have $70,000 you should only be using $70,000.

If you were using 5 to 1 leverage with an account size of $70,000, how did you come to the figure of 1.4 million?

It also seems as though you did not fully comprehend what I posted. There should be no need for negative balance protection because you should not be trading with financial instruments that require it. Leverage is just going to compound that problem.

I swear the two most popular expressions on this forum are black swan event and blowing up your account.
hhiusa

I take your point and agree with some of your comments as well

Remember this site is a retail traders site and not a commercial trading group discussion forum - so the subject covered will be maybe unusual for you as I think you are trading using rules commercial institutions would use.

I use 100:1 leverage on a approx $70K on one of my accounts

Now if I only uses a leverage as you and Banks recommend - I would need to deposit 20 times more capital - ie $1,400,000 - to trade at my maximum lot size.

2 years ago I was using leverage of 200:1 - but I did not use all of it and I have in the past had small account with 500:1 leverage - and have not blown any account up since my first year well over a decade plus ago.

If I only used say 10:1 leverage - my ROC would be drastically reduced

OK if I was not making consistent money but was say a "break even or only 10% a year" trader - then lower leverage might be an aid.

I look forward to you explaining how you work out your stake size - ie is it still just 1 or 2% of your capital base on just 5:1 leverage - ( mines 0.3 to 1% ) nowadays on leverage of 100:1 - because of tight stops - but with you not using stops then for example on your GU buy trade - I can only see you making small returns even if you exited when it was up over 140+ pips ?

Also because I am only FX - never traded any other instruments - I am totally naive on all other forms of non FX trading - so I am sorry I can only relate to my field

No rush

Regards

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Old Mar 1, 2016, 8:33pm   #16
 
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risk capital is just the sum of money youve set aside to risk in the market in any way you choose.
any monies you have on deposit with a broker is at risk, position or no. a trader can have 1/10 of his risk capital with his broker and the other 9/10 under their pillow. they can trade that account 10x and remain sized overall the same as a 1x trader, but with much less counterparty risk of the broker.

Re no neg balance.
Nothing is guaranteed, but, say the OP has 10% of his r capital with a no neg balance broker. Hes plodding along 1 to 1 overall when the hes buttficked swiss style!..
At the very least, he has the chance of not having to fund the account to cover those losses.
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