Trading on Margin

[mray]

Is it possible to lose more than you've deposited or will you always be margin called before that is a possibility?

ie: If I deposit $5000 can I possibily lose more than that $5000 if I trade on a margin, I mean, is it at all possible to dip into the leveraged money?

 

[Hoggums]

mray Yes.

E.g. if you have a long position open on a share and it releases a bad set of results before market open it's quite possible that it will gap down at open to a point way below your margin call level.

 

[raysor]

Is it possible to lose more than you've deposited or will you always be margin called before that is a possibility?

ie: If I deposit $5000 can I possibily lose more than that $5000 if I trade on a margin, I mean, is it at all possible to dip into the leveraged money?

Depends what and how you are trading. If you are long then you can only lose up to your stop or a bit more if it is not guaranteed. What happens if you get a margin call? Would you abandon the position or cough up some more margin.
From other threads your margin shouldn't be taken as your total loss ceiling. It is the actual possible loss on the particular trade.
The margin is just to enable the provider to let you do the trade, i.e. it is for their protection not yours.
If I let you buy £5000 of stock with £1000 cash collateral/margin and the stock went to zero you have lost £5000 and owe me £4000.

 

[Rhody Trader]

If you are long then you can only lose up to your stop or a bit more if it is not guaranteed.

This is totally incorrect. As Hoggums said above, if the market were to gap you could absolutely find yourself in a negative equity position.

For example you buy XYZ at 100 on margin, meaning you put up 50. Say over the weekend the Comptroller is found to have been cooking the books and on Monday the stock opens at 30. In that case you're out your 50 plus 20 more you owe the broker.

It gets even scarier in futures where markets can go lock limit and no trading takes place to fill stops.

 

[raysor]

This is totally incorrect. As Hoggums said above, if the market were to gap you could absolutely find yourself in a negative equity position.

For example you buy XYZ at 100 on margin, meaning you put up 50. Say over the weekend the Comptroller is found to have been cooking the books and on Monday the stock opens at 30. In that case you're out your 50 plus 20 more you owe the broker.

It gets even scarier in futures where markets can go lock limit and no trading takes place to fill stops.

Surely if you pay for a guaranteed stop it must happen?

 

[Rhody Trader]

Surely if you pay for a guaranteed stop it must happen?

You said "if it is not guaranteed".

 

[raysor]

You said "if it is not guaranteed".

Sorry not very well composed, I meant; "You can only lose up to your stop (if gtd.) or a bit more (sometimes a lot more!) if not gtd."
I thought I might have exonerated myself by the example that followed!