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I entered a trade with 10 USD and a leverage of 1:100. There was a margin call, and the position was automatically closed. I would like to know how I lost 30 USD when I entered a trade with only 10 USD. Wasn't the margin call supposed to prevent me from losing more than 10 USD?

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  • What did you buy with the 10 USD?
    – Flux
    Commented Jun 28, 2021 at 12:06
  • I entered a EUR/USD trade with 10USD, with 1:100 leverage, and a margin call of 100%...This was done at the Market maker. Later I was notified that the margin call happened, and that I have lost 28 dollars...What if I had only 10USD on my account..what would've happened than..Coz right now it seems like this was possible only because I had more money on my account that I have opened a position with. Commented Jun 28, 2021 at 12:07
  • What date and time did this happen? The risk with EUR/USD is less than with stocks because it trades continuously for 5 days a week (maybe even more outside the US), but if it gaps down half a percent on Sunday evening that could be a problem if you don't have extra cash in your account to use as a cushion.
    – Lou
    Commented Jun 28, 2021 at 16:42
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    Which part of Leverage do you not understand?
    – Aganju
    Commented Jun 29, 2021 at 2:35
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    @Aganju I just thought that I cannot lose more than I put in...So, for example, if I entered a trade with 10USD, and leverage 1:100, in case i start to lose, the position will get closed once I have lost all the money I put in..it seemed like a logical and simple way to do things...and the gains for broker, for giving me such leverage, was that I will lose money faster if I start losing..but as you can see, that is not the case..I can apparently lose all the extra 990 USD I have "lent" from my broker. Commented Jun 29, 2021 at 8:21

1 Answer 1

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Buying on margin refers to buying of securities with cash borrowed from a broker with securities acting as collateral, covering a portion of the risk of the position. This use of margin magnifies the potential profit or potential loss and both exceed the amount of the collateral. It does not mean that the position is risk free.

At 100:1 leverage, the amount of the collateral covers a mere fraction of possible price change, namely a 1% move. In your case, the security moved a mere 4% and that cause a deficit of $30, three times the amount of your collateral.

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  • I thought that if I open a position using 10USD, and a 1:100 laverage..that would mean that my broker gives me 990USD more..If I start winning, I collect the profit and return them the amount I have "borrowed", namely 990usd..And if I lose, I can only keep losing until the loss of 10USD is reached, after which the position is closed, and the broker collects the money they "borrowed" me..To me it made perfect sense, but I can that it is wrong..Thank you so much for you answer..and if there is a broker that uses the principle I have described, let me know. Commented Jun 28, 2021 at 12:46
  • The only way that you can obtain large leverage without open ended risk (losing more than your investment) is options. However, the higher the leverage, the less likely the probability of profit. Commented Jun 28, 2021 at 12:49
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    What if the broker cannot sell at exactly a 10 USD loss? What if the market is moving too fast downward? Your agreement with the broker says that, in this situation, you take the additional loss, not the broker. This is true of all margin accounts. Commented Jun 28, 2021 at 16:00
  • @AndjelikaZogovic a knockout CFD (illegal in the US) will also work the way you describe. Commented Jun 29, 2021 at 4:26
  • @OrangeCoast-reinstateMonica Everything that you said is true, but there is a certain difference between a legit broker and a Market maker...Market maker doesn't actually give you the ownership over the currencies or other assets, you just bet on the value of it..so every time you lose a "bet", they get the money..and it costs them nothing to give you the leverage, because in that case you'll lose money faster (if you start losing), and even if you lose the money they gave, that money still ends up with them...I am not sure if I explained it the right way or if you get the my point.. Commented Jun 29, 2021 at 8:34

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