Leverage question

[Shamperz]

Hi all

So I understand WHAT leverage is and why it’s used but am struggling to understand some of the mechanics if someone could help? I’ll illustrate with my own circumstance.

So I have 30:1 on my account
I have £400 of my own capital in the trading account. I place a trade risking 2% of my capital (£8.00 - big money, I know 😂).

£8.00 x 30 leverage = £2400 buying power in the market.

If the market goes against me and I’m stopped out, clearly I lose the £8.00 but what about the remaining £2392?

Do I owe it to the broker (surely not)?
Who writes it off etc?

A quick internet search tells me I’m liable for the lost funds to the broker but how can anyone start trading and learn if they might get wiped out and become in debt to the broker because of leverage? Even when I’m only risking 2%

Please demystify for me good people.

 

[TWI]

Leverage allows you to hold a larger position in the market with a smaller amount of your own capital. In your case, a 30:1 leverage means that for every £1 of your money, you can purchase something of £30 market value but it does not mean you can continue to hold it when the price declines.

Your Example:
Capital in Account: £400
Risk per Trade: 2% of £400 = £8
Leverage: 30:1
Market Exposure: £8 x 30 = £240
What Happens When the Trade Goes Against You:
If the market moves against you and your position will be stopped out.
You lose the amount you risked, which is £8.
The leverage allows you to hold a position worth £240 with only £8. If the price drops to £232 (-3.33%) your stop-loss triggers, you lose the £8 (-100%) you risked.
If you were not using a stop-loss at £8 loss and the market moved further against you, the broker will deduct more money from your account to match the loss in the market. So if the price moved to £200 you would be down £40.