Maximum loss/risk in Forex trading

Discussion in 'Forex' started by hambman, Nov 10, 2009.

  1. hambman

    hambman

    hi there,

    I'm confused about the maximum risk involved in forex trading. and can not find the answer by reading many places.

    I learned that once my account has less premium than the required margin, my broker can close my position. However, the assumption is the market volatility is mild, and the broker can successfully sell the currency I hold.

    In a market crash, the value of my currency drops significantly, if the loss is larger than the margin itself, am I responsible for the full loss ? Or the broker is ?

    How about the margins for commodity , do they have a similar mechanism to limit our loss to the margin, or it is theoretically unlimited.


    Thanks,
     
  2. Pippi436

    Pippi436

    Its possible that the account ends up with a negative balance, with futures as well as fx.

    You should have at least a protective disaster stop well above margin-call level. When a margin-call happens, it gives the broker the right to place trades in your account and manage his risk (since you have proven unable to manage yours). There are many margin-call related horror-stories on this board, and you should avoid this situation at all costs.

    There are a few firms (i only know about Oanda) that guarantee that you don't have to pay negative account-balances, but most don't. But really, if your account trades anywhere near that level, you are doing something very wrong. It's not an issue if you employ sane risk management.
     
  3. Read your agreement... If your account goes negative most brokers will come after you.

    I found one broker that spells their policies out in big bold type..

    Openecry.com (Gain)

    Guaranteed fills on stop loss and limit orders *

    During OEC FX's trading hours, all stop and limit orders up to $2 million are guaranteed to be filled at your price.

    We understand that stop loss and limit orders are an important part of every trader's risk management strategy, and so we take this policy very seriously. This policy does not apply during major fundamental announcements, or outside OEC FX's normal trading hours.
    Negative account balance protection *

    At OEC FX, your risk is only limited to funds on deposit.

    Our margin policy eliminates concerns about debit balances by guaranteeing that you will never owe more than you have in your account.

    http://www.openecry.com/software/fx_whyoec.cfm
     
  4. interesting!