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What happens if you lose more than your inital postion in forex market?

Forex trading is a lucrative market that has attracted millions of traders worldwide. However, it is also a risky market that requires careful consideration before entering. One of the risks involved in forex trading is losing more than your initial position. This article will explain what happens if you lose more than your initial position in the forex market.

To understand what happens when you lose more than your initial position, it is essential to understand the concept of leverage. In forex trading, leverage allows traders to control a large amount of currency with a small initial investment. For example, if you have a 100:1 leverage, you can control $100,000 worth of currency with only $1,000 in your account. Leverage is a double-edged sword, as it can amplify your profits, but it can also magnify your losses.

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When you enter a trade, you will set a stop loss order. A stop loss order is an instruction to close the trade if the price moves against you. This is a risk management tool that helps limit your losses. However, if the market moves too quickly, and the price gaps, your stop loss order may not be executed at the desired price. This is known as slippage.

If you lose more than your initial position, it means that your losses have exceeded your available margin. Margin is the amount of money required to open and maintain a position in the forex market. When your losses exceed your margin, your broker will issue a margin call. A margin call is a request for additional funds to cover your losses. If you do not add funds to your account to meet the margin call, your broker will close your trades.

When your trades are closed due to a margin call, it is known as a margin call liquidation. The broker will close your trades at the current market price, which may be lower than your stop loss order. This means that you will incur additional losses beyond your initial position. The amount of losses you will incur will depend on the size of your position, the leverage, and the market volatility.

Margin call liquidation can be a devastating experience for traders. It can wipe out their entire account balance, leaving them with nothing. This is why it is essential to manage your risk carefully and avoid taking excessive risks.

To avoid losing more than your initial position, you should always use stop loss orders and monitor your trades closely. You should also avoid taking excessive risks by using appropriate leverage and position sizing. It is essential to have a solid risk management plan that includes a maximum loss limit, a stop loss strategy, and a margin call plan.

In conclusion, losing more than your initial position in the forex market can be a devastating experience. It can result in margin call liquidation, where your broker closes your trades, and you incur additional losses beyond your initial position. To avoid this, you should manage your risk carefully, use stop loss orders, and avoid taking excessive risks. With proper risk management, you can minimize your losses and increase your chances of success in the forex market.

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