Is it possible to get into debt with forex trading if you use leverage and stop losses?

[spaw]

Hi, I trade binary options, which I can earn at most $50 to $100 a week with a fair amount of effort. I'd like to start trading forex by depositing a minimum of $100 or $200 and using 1:100 leverage with a stop loss and a minimum risk-reward ratio of 1:2 to start making a few dollars in profit. Today, after doing some research, I read about people who, even though they had a broker who blocked their account at a loss (I'm guessing people without a stop loss), lost everything and went into debt because the market gapped well beyond the amount of their account. Hence my question: is it possible that the broker doesn't detect my stop loss or doesn't close my account in time, thus causing me to go into debt instead of making money?

 

[MrHyoyatika]

Yes.
Losses can exceed your deposit.

However, many brokers now offer protection against incurring losses largely than your deposit/capital. If that is your concern, find one that offers that.

 

[The Cube]

Further to previous answer:
A stop loss offers no guarantees; it is simply a level at which your order becomes a market order. Look up and understand the very real risk of slippage. You can protect yourself with guaranteed stop losses (at an additional cost) with some brokers. And if you are a UK retail trader, properly regulated brokers should offer you a negative balance guarantee.

PS binary options are a hiding to nothing, they are pure guess work. Appreciate you say you are profitable, but it won't last. You cannot get an edge with binaries.

 

[AriaS]

Most likely, no. Most brokers offer negative balance protection. That's why they have margin stop. Usually it is at 20-50% equity of used margin. This way they protect you from losing more than you have deposited and also make you to be able to keep trading even after stopped out (some money is left). Don't get close to it. If you are stopped out, there is a risk they will have to absorb your slippage (if it happens, and if they are a true broker). They don't like it.

 

[Lightning McQueen]

Most likely, no. Most brokers offer negative balance protection. That's why they have margin stop. Usually it is at 20-50% equity of used margin. This way they protect you from losing more than you have deposited and also make you to be able to keep trading even after stopped out (some money is left). Don't get close to it. If you are stopped out, there is a risk they will have to absorb your slippage (if it happens, and if they are a true broker). They don't like it.

What do you mean Aria? "Most likely, no."

It is highly likely the op has been looking at the forex offerings of their binary options broker, therefore highly likely non regulated and therefore likely not carry negative balance protection.

Indeed on looking at one of these entities at random this would appear to be the case and they could hang the unwary/uninformed out to dry.

1. Operations with foreign currency and derivatives

1.1 Leveraged trading means that potential profits are magnified; it also means that losses are magnified. The lower the margin requirement, the higher the risk of potential losses if the market moves against you. Sometimes the margins required can be as little as 0.5%. Be aware that when trading using margin, your losses can exceed your initial payment and it is possible to lose much more money than you initially invested. The amount of the initial margin may seem small in comparison with the value of the foreign currency contracts or derivatives, since the "leverage" or "gearing" effect is used therein, in the course of trade. Relatively inconsiderable market movements will have proportionally increasing impact on the amounts deposited, or intended to be deposited by you. This circumstance may work either for you, or against you. When supporting your position, you may incur losses to the extent of the initial margin, and any additional sums of money deposited in the Company. If the market started moving in the opposite direction of your position, and/or the amount of the required margin increased, then the Company may require you to urgently deposit additional sums of money to support the position. Failure to meet the requirement to deposit additional sums of money may result in the closing of your position/s by the Company, and you will bear the responsibility for any losses or lack of funds connected therewith

In my view the op asked a wise/informed question and received excellent/informed replies. I know I'm being pedantic, it was the "Most likely, no" that jarred in the context of the thread.

 

[AriaS]

What do you mean Aria? "Most likely, no."

It is highly likely the op has been looking at the forex offerings of their binary options broker, therefore highly likely non regulated and therefore likely not carry negative balance protection.

Indeed on looking at one of these entities at random this would appear to be the case and they could hang the unwary/uninformed out to dry.



In my view the op asked a wise/informed question and received excellent/informed replies. I know I'm being pedantic, it was the "Most likely, no" that jarred in the context of the thread.

"Most likely, no. Most brokers offer negative balance protection." I assume that Spaw is intelligent enough.

 

[Lightning McQueen]

I assume from his question he is indeed intelligent enough. But in the context of his question there was doubt, hence the inquiry.

Your "most brokers" stance falls apart when looking at niche offshore brokers of the like the op is using.

 

[IlIlIlIlI]

In the EU it is forbidden that retail clients have to pay the losses left on a wiped out account. See ESMA (EU) 2018/796.

If a broker ignores a stop loss or has technical problems or is simulating technical problems, that is another question which does not affect the ESMA rule.