Losses can exceed deposits vs. Guaranteed Stop Loss Order

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Old Jan 13, 2018, 8:22pm   #1
Joined Oct 2016
Losses can exceed deposits vs. Guaranteed Stop Loss Order

Hi.

Every CFD company has this: "Losses can exceed deposits" (due to leverage), but none of them explain exactly the mechanism. What does it mean? Can you have a negative account balance ? I know the leverage mechanism, but the phrase "Losses can exceed deposits" is vague ...

Because, meaningfully, it can be interpreted:

A. You can deposit 1000$, earn 5000$, and then lose 3000$. "Losses exceed the initial 1000$ deposit".

B. Also, you can deposit 1000$. But can you lose 3000$ (with a -2000$ ac. balance) ? (in absence of a Guaranteed Stop Loss Order) - after a gap, let's say?
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Old Jan 13, 2018, 10:05pm   #2
 
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Originally Posted by Rhesus22 View Post
Hi.

Every CFD company has this: "Losses can exceed deposits" (due to leverage), but none of them explain exactly the mechanism. What does it mean? Can you have a negative account balance ? I know the leverage mechanism, but the phrase "Losses can exceed deposits" is vague ...

Because, meaningfully, it can be interpreted:

A. You can deposit 1000$, earn 5000$, and then lose 3000$. "Losses exceed the initial 1000$ deposit".

B. Also, you can deposit 1000$. But can you lose 3000$ (with a -2000$ ac. balance) ? (in absence of a Guaranteed Stop Loss Order) - after a gap, let's say?

B is the correct interpretation, A is wrong

https://www.forexcrunch.com/some-bro...tive-balances/
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Old Jan 13, 2018, 10:25pm   #3
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Rhesus22 started this thread Thank you!

It's strage because, reading the Terms and Condition, "at their sole discretion", a broker firm can make ... everything they want. For example: if I have a position, they can move the spread in order to "cut me off" ....

Reading, reading, and RE-reading, you'll find that you can get a negative balance, in a "legal" way: You buy/sell an asset (or trade a CFD - in my case)), the spread is - let's say 1.8 pips -, and after 5 minutes, they'll "rise" it at .... 100 pips, in order to hit your stop limit .......................... Their response, will (could) be:
"The information on our website [...] indicative only"
"At our sole discretion WE have decided to ..."
"Unfortunately we couldn't tell you why ...."


You have no guarantee that the broker will play "clean" or "dirty". They can rise the spread (above your stop loss level) in order to cut off + to get some money from you (if you understrand me) .... 50p stop loss? No problem! 80pips spread! 100p stop loss? No problem! 150pips spread! From now!
Argh ...

PS. It's about LCG broker ...

Last edited by Rhesus22; Jan 13, 2018 at 10:40pm.
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Old Jan 13, 2018, 11:40pm   #4
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Originally Posted by Rhesus22 View Post
Thank you!

It's strage because, reading the Terms and Condition, "at their sole discretion", a broker firm can make ... everything they want. For example: if I have a position, they can move the spread in order to "cut me off" ....

Reading, reading, and RE-reading, you'll find that you can get a negative balance, in a "legal" way: You buy/sell an asset (or trade a CFD - in my case)), the spread is - let's say 1.8 pips -, and after 5 minutes, they'll "rise" it at .... 100 pips, in order to hit your stop limit .......................... Their response, will (could) be:
"The information on our website [...] indicative only"
"At our sole discretion WE have decided to ..."
"Unfortunately we couldn't tell you why ...."


You have no guarantee that the broker will play "clean" or "dirty". They can rise the spread (above your stop loss level) in order to cut off + to get some money from you (if you understrand me) .... 50p stop loss? No problem! 80pips spread! 100p stop loss? No problem! 150pips spread! From now!
Argh ...

PS. It's about LCG broker ...
The negative balance provision became a standard feature after the SNB debacle. Some brokers went broke and some almost because they had to absorb the negative balances due to their less than precise wording in the client broker agreement. In a black swan event as with the SNB crisis, there were simply no bids and the spread just widen. In such an event the fill price can result in a negative balance especially when your positions are highly leveraged.

Reputable brokers do not as a business model intentionally screw clients. It is simply not good for reputation and as an ongoing business model especially with social media. As a business they also need to protect themselves against black swan events. Traders on their part should understand the elevated risk of highly leveraged positions.
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Old Jan 14, 2018, 1:19pm   #5
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Rhesus22 started this thread Yes, you are right, Bramby, but you don't understrand my concern.

Let's say there is no event like SNB debacle, just a normal day.
I usually trade CFD's on Dow, where the spread is around 2 pips.

Let's say I will buy 1/5/10 lots, with SL at -25p, and TP at +60p. With high leverage.
But suddenly, only for my account, they "can" rise the spread (for 1-2 seconds) at 30-40p, in order to hit my SL.

So, I don't talk about an "exceptional" event (Black Monday, SNC debacle, etc.) which could destroy your account. I simply talk about the possibility, due to their Terms and Condition, to rise their spread, let's say when they see that you have profit.

Another scenario: They can refuse the TP order, if you have a huge position ...
Another scenario: Today, without any order/pending order, you have X USD in account. Tommorow, they can "change" the balance to another amount of USD. Why? Because they can ...

The Terms and Condition for all brokers exempt them from any responsibility. They can do everything they want, they can give you a "f*ck", especially for those who got a constant profit. This is my concern...


SNC debacle, Black Monday, etc. are the responsibility of the trader! I do not contest! But when someone is raising their spread just for you account, just to "cut" your position, this is a scam. Am I wrong?

Last edited by Rhesus22; Jan 14, 2018 at 1:51pm.
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Old Jan 14, 2018, 2:40pm   #6
 
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But when someone is raising their spread just for you account, just to "cut" your position, this is a scam. Am I wrong?
i used to trade with cmc over the phone years ago-i often used to contact them if my stops got hit.they will tell you why.their prices should reflect the actual market price.How much are you betting per point on the dow.i used to trade 1 dollar per point.
Place the same trade with 2 brokers???????(smaller bet)
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Old Jan 14, 2018, 2:58pm   #7
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Rhesus22 started this thread I haven't encountered the problems mentioned. They were just scenarios (questions which everyone should put!). I don't place the same trade with 2 brokers.

I am starting with 1$ / point (as you). But I do not want to have problems (because now I am becoming profitable, and I could, in future, raise till 20-30$/point).

You are right, but nothing is guaranteed:
Their price should reflect the actual market price. They can change, just for you the spread (if they saw it's a large position), in order to .. "f*ck you" and to get some money from you ..

For example (I use a CFD - DOW example):
Let's say we have a 25000.0 (bid/sell) / 25001.8 (ask/buy). At this level, I "buy" 5 lots (which means 50$ / pip), with SL: -25p (24975) and TP: +60p (25061.8).

After 10 minutes, you are profitable: 25010 (bid) / 25011.8 (ask). Suddenly, they can (due to their T&C) change the spread, just for your account, to 24970 (bid) / 25050 (ask). Spread of 80 pips. It's impossible, from our perspective, but allowable by their T&C. They are not even obliged to tell you why!

So, despite the fact that you had profit, they have "changed" the spread, in order to hit your SL. Furthermore, you are (24975-24970) = 5 * 50 = -250$ in debt.

I repeat, these are just scenarios, but perfectly valid. They can make you account "negative", just by "working" with their spread, especially for you acc.
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Old Jan 14, 2018, 3:53pm   #8
 
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Do you think they will make more money from you in the following ?

A. raising the spread to 20 pip's just for your account and hitting your stop ( knowing you will most likely cancel the account )

B. keeping you as a active trader and taking a 2 pip spread on every trade you make ?
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