The FOREX trading is fascinating becauseit can make a big profit from the initial small investment but on the other hand it carries a high risk of such losses.
To minimize the risk, you have learnt about the importance of Loss Cutting.
So, is it possible that the loss incurred exceeds the amount invested in Forex?
When balance becomes negative
In FOREX, if there is no Stop Out when prices fluctuate, then loss can exceed the invested amount (negative balance).
Is it true that excessive loss could turn into debt
If you don’t “Stop Out" in time, the negative balance will essentially become the same as the debt owed to the FOREX trading company.
However, among FOREX brokers, there are companies that provide negative balance protection service to prevent loss therefore this is a key aspect to consider a broker.
A real case where you don’t Stop Out in time
Below shows an “EUR / CHF" chart when the Swiss National Bank cancels the upper limit of 1EUR = 1.20 CHF, the upper limit of the Euro for Swiss Franc on 15 January 2015.
Swiss Franc increased in comparison with all other currencies, many investors suffered losses, causing turmoil in the world economy.
When a currency fluctuates suddenly like this the equilibrium for selling and buying will be broken, therefore sometimes it is impossible to trade. (In the reference chart there is no value in between).
If the trading does not happen then Stop Out is not required, resulting in mounting loss. When trading starts, initial capital will become negative, resulting in significant debt
Sudden fluctuations in forex can affect the announcement on economic indicators made by spokespersons of the government, this might happen a few times a year.
Therefore, transactions at FOREX trading companies that provide negative money compensation services will play an important role.
Note for members who deposit by credit card
There are many methods to deposit funds into FOREX trading companies, but those who deposit by credit card should be aware of the following.
If VISA debit card is paid in saving account then it should not be aproblem, credit card will be deposited by the card company. (The rate is as high as a loan)
If you have not considerred carefully and deposit gradually by credit card, you might face some problems later on when credit card company requires payment, therefore we advise that you withdraw your saving by debit card first before depositing