You do not agree with me?! Lets think! -Leverage is borrowed money. So if I play with 100.000$ and market goes against me, then broker lose 100.000$. If there are 10 like me- "losers", then broker company lose 1 million! Or I am wrong?!
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March 30th, 2008 at 8:17 am
you are wrong.
The final losers are clients
March 30th, 2008 at 8:17 am
No. You'll lose your money, but the broker will keep his.
March 30th, 2008 at 8:17 am
Sorry, but the broker keeps his money.
It's not the broker that borrows money - the clients do. The leverage has nothing to do with a broker's earnings because if a client is losing money, the broker simply puts out a margin call. If the client fails to respond to this margin call by depositing more funds, the broker simply closes the client's position.
For example: You play with $100.00 and with a margin requirement of $50.00. If your position goes bad to the point that all you have left in your trading account is $50.00, the broker will send you a margin call. If you fail to respond by depositing funds (within set deadline, whatever it is), then the broker closes your account. He loses nothing because he doesn't need to fulfill any margin requirements to settle the trade. If he lets your trading account fall to, say, $40.00, then he'll have to pay up $10.00 in margin to settle the trade. He won't let it come to that point, so when your account drops down to $50.00, that's it. Position closed.
March 30th, 2008 at 8:17 am
You're wrong. If the position goes against you, they'll close your trade. The maximum amount of money you can lose is your entire account. Forex brokers never put their money at risk.
March 30th, 2008 at 8:17 am
I'll try to answer this one as concise as I can.
Yes the broker "borrows" that money. But since a lot of online forex are market makers, some of them may not even physically place that trade on the open markets.
BUT they have systems in place to ensure THEY NEVER have anything at risk. (Well that is if they know what they're doing)
The margin you provide is all the risk that they ever have since they STOP the trade once it the currency price hits the margin amount you've deposited with them.