FOREX trading is attractive because it can make a big profit from the initial meager relatively small capital but also carry the same risk of loss.
To minimalize risks,you might have read about how important Loss cutting is in reducing the loss.
So, are there any cases where loss exceeds the amount invested in FOREX?
When capital becomes negative
In FOREX, if there is no Stop Out when forex market fluctuates wildly, then loss could exceed the initial investment (negative balance).
Can loss increase and become debts?
If Stop Out is not placed in time, the balance will become negative, this is basically the same as the debt owed to the FOREX trading company.
However, among the FOREX trading companies, there are companies that provide negative balance protection to protect clients from incurring debt so this is a very important point when choosing a trading company.
Real example when Stop Out is not placed in time
The chart below is a chart of “EUR /CHF" when the Swiss National Bank announced the cancellation of the upper limit of 1 EUR=1.20 francs, the upper limit of the Euro for Swiss Francs on 15 January 2015.
Swiss Franc appreciated against all other currencies, many investors suffered losses, causing turmoil in the world economy.
When forex fluctuates suddenly like this, the equilibrium of demand for buying and selling will be broken, and sometimes it will not be possible to trade. (In the reference chart there is no value in the middle.)
If there is no purchase, there is no forced Stop Out payment, leading to long-term losses. When the sale is made, the initial capital will be negative and turn into a large debt.
The sudden fluctuation in forex means that the economic indicators or announcements of the key people in the government have large impacts, and it happens several times a year.
Therefore, FOREX trading companies that provide negative balance protection will play an important role.
Note for those who deposit with credit card
There are many methods of depositing money into a FOREX trading company but those who deposit funds with their credit cards should be aware of the following.
If a VISA debit card is paid from a bank saving account, there is no problem, the credit card will be topped up by the card company. (The rate is as high as debit.)
If you are not careful and deposit by redit card, then you will have trouble when credit card companies ask for payment so the we recommend you to withdraw the from your saving account by debit card then deposit it to your account.