Alan Solarsh - Can Forex Leverage Put You in Debt? Currency trading can be a lucrative business, giving traders opportunities not available in other markets. One of them is leverage, which allows you to trade in large volumes and multiply your profits, says Alan Solarsh.
Can Forex Leverage Put You in Debt? If you don't use forex leverage wisely, you can end up in debt. It can wipe out your account and even turn it negative if you lose more than you deposited. Your broker may ask you to recover the difference to zero by paying them the difference. You owe them this money and may face lawsuits if you don't pay them. How Can Leverage Put You in Debt? The double-edged sword of leverage is a well-known concept. You could end up blowing your whole account if you don't use it carefully. But if you trade it wisely, you can make huge profits. Your broker lends you money through leverage. Leverage allows you to trade with less capital and a larger volume. You could lose more money than your deposit when trading with leverage. Following are some scenarios that may occur whit a losing position: You won't lose more than you have if a margin call has been set up by your broker. The margin call stops your position when your account reaches zero. In this way, it won't get negative, and you won't owe any money to your broker. But if you don't have a margin call, your account goes negative when you lose more money than you deposited. It's up to your broker to decide whether you're liable for the debt or not. Different brokers have different policies when it comes to negative accounts. Here are a few: Negative accounts are sometimes ignored by brokers, who change your deposit to zero so that you can start trading with more money. You are held responsible for the loss of money by other brokers. In other words, you owe the broker money and must pay it in order for the account to reach zero. How Does Leverage Work? According to Alan Solarsh, forex leverage is different from any credit line in that you don’t need to pay it back. It serves as a safeguard to ensure that you won't default on your positions. As a result, you must keep your position open before a margin call closes it. As a result, you do not owe any money to your broker when you use leverage.