Warning, Forex Unlimited Risks Beyond Your Account Balance?!

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Pooya Khamooshi
995
Pooya Khamooshi  

Hi,

Just wondering when can the unlimited risks of Forex happen that we must avoid? I mean losing more than your account balance. Usually broker is supposed to margin call you out but sometimes they can't! There is no liquidity in the market!

How often such disasters happen?

Which markets are more prone to such problems?

How to identify and avoid such disasters?

One scenario I can think of is a sudden large weekend gap where the price moves hundreds of pips and broker unable to close you out at your stop loss and therefore you end up in a negative balance owing the brokers thousands that you don't have!

Which means the broker will come after you!

Another scenario is at News time where within a tick, market moves hundreds of pips and your stop loss won't be effective unless you get a guaranteed stop loss from the broker which is more expensive.

I can think of the below approaches to remove/reduce the risk:

  1. Close all trades on Friday evening with loss or profit
  2. Close all trades before major news with loss or profit
  3. Only trade high liquidity markets
I guess only if you trade with very small lot sizing like £0.01 per £1000 capital, you can be exempt from above rules.
Batuhan Ortay
172
Batuhan Ortay  
Pooya Khamooshi:

Hi,

Just wondering when can the unlimited risks of Forex happen that we must avoid? I mean losing more than your account balance. Usually broker is supposed to margin call you out but sometimes they can't! There is no liquidity in the market!

How often such disasters happen?

Which markets are more prone to such problems?

How to identify and avoid such disasters?

One scenario I can think of is a sudden large weekend gap where the price moves hundreds of pips and broker unable to close you out at your stop loss and therefore you end up in a negative balance owing the brokers thousands that you don't have!

Which means the broker will come after you!

Another scenario is at News time where within a tick, market moves hundreds of pips and your stop loss won't be effective unless you get a guaranteed stop loss from the broker which is more expensive.

I can think of the below approaches to remove/reduce the risk:

  1. Close all trades on Friday evening with loss or profit
  2. Close all trades before major news with loss or profit
  3. Only trade high liquidity markets
I guess only if you trade with very small lot sizing like £0.01 per £1000 capital, you can be exempt from above rules.


I think that 1:1 leverage is too low in FX, 4 - 5 ideal, above 10 can be very dangerous and can cause high drawdowns even in the normal market conditions.

Closing all trades on Friday evening is a good practice, but I don't think that there can be a huge liquidity problem on the times of the preannounced economic calendar news (excluding some important news about political, international etc. situations such as elections, referendums, wars).

The most dangerous situations, I think, are those times when the Central Banks make some sudden statements or like so, as happened in USDCHF in 2015.


In these times, EURUSD is the only pair for me to trade.

GBP pairs should always and especially be avoided.

andrew
494
andrew  
Pooya Khamooshi:

Hi,

Just wondering when can the unlimited risks of Forex happen that we must avoid? I mean losing more than your account balance. Usually broker is supposed to margin call you out but sometimes they can't! There is no liquidity in the market!

How often such disasters happen?

Which markets are more prone to such problems?

How to identify and avoid such disasters?

One scenario I can think of is a sudden large weekend gap where the price moves hundreds of pips and broker unable to close you out at your stop loss and therefore you end up in a negative balance owing the brokers thousands that you don't have!

Which means the broker will come after you!

Another scenario is at News time where within a tick, market moves hundreds of pips and your stop loss won't be effective unless you get a guaranteed stop loss from the broker which is more expensive.

I can think of the below approaches to remove/reduce the risk:

  1. Close all trades on Friday evening with loss or profit
  2. Close all trades before major news with loss or profit
  3. Only trade high liquidity markets
I guess only if you trade with very small lot sizing like £0.01 per £1000 capital, you can be exempt from above rules.

I'm guessing there's only so much you can do. Others have suggested a second SL, in case of a gap, but that might also get taken out. Perhaps a trade in the opposite direction, or an alternate currency to hedge any loss? But the dealer might close down trading for a time after a huge move...

For me, the only real strategy is to use money you are happy 100% to lose.

So if you have 5000k set aside for forex, only have, say 1000k (whatever your comfort zone is) in a trading account at any one time. Lets face it, if you're not making money with 1000k, it's good you're not using the full amount. That means, also, you focus on the challenge of beating the market, not of making money....;)

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