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  1. #1
    Registered User gesten's Avatar
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    Can you lose more than you invest in margin trading

    Say I wanted to do 100$x10 call for crypto margin trading or real stock margin trading

    Can you lose more than the 100$ you put in if the trade starts going the other way?

    Or is the people who give you the loan automatically cancel the trade when you lose the 100$ so you don’t go negative
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  2. #2
    Registered User JuicedMayhem's Avatar
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    No because wen you trade you trade for more. So you made money but even if you trade for less you still make money but it’s less. So as long as you are trading you are always making money. Especially long.
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  3. #3
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    If you are long call (you want the underlying to go above the strike price) then by definition the maximum you can lose is the premium (the amount you pay initially, in this case 100x10).

    If you are short call (you want the underlying to go below the strike price) you can technically lose an unlimited amount however your broker will indeed kick you out of the position before you can lose more than the amount you have on your account.

    Having said this, in very extreme events (for short calls), this might not be possible and you might be ****ed and owe an amount to the broker. This is extremely rare (i.e. when EURCHF floor broke) and it will be very complicated for the broker to claim the moolah. They will only go through such hassle if the amount is consequent (probably more than 100kUSD)
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  4. #4
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    do they have
    a negative balance
    protection or definition?
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  5. #5
    Registered User caltech21's Avatar
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    Originally Posted by gesten View Post
    Say I wanted to do 100$x10 call for crypto margin trading or real stock margin trading

    Can you lose more than the 100$ you put in if the trade starts going the other way?

    Or is the people who give you the loan automatically cancel the trade when you lose the 100$ so you don’t go negative
    Yes, absolutely. In theory, if you went short on a stock, you have unlimited loss potential if the stock runs. There are tons of horror stories out there.

    Even without playing options, depending on the value of your underlying positions, margin requirements and lending capacity, you can definitely go negative. The stock that comes to mind for me was Vermillion Energy, a Canadian oil and gas company. In Feb of 2020, it was trading right around the $18-20CAD mark, paid a dividend of 15%, and had a lending capacity of 66% (For every $1000 of shares held, you could borrow up to $660).

    In the span of three weeks in early March when **** hit the fan, the stock dropped to under $2. This was a double wammy, in that not only did you lose a massive amount of money, but the lending capacity was switched to 0% (if a stock falls below $3, you can't borrow against it - at least with TD Bank). Using that same example of $1000, your shares would be worth $100 after the price drop, and any stock you purchased based on the lending capacity would push you into negative territory ($100 - $660 = - $560). While this figure is also a function on whether the stocks you purchased with borrowed money have risen or fallen, there is a strong likelihood that you now owe the bank, triggering a margin call (forced liquidation). What I'm not entirely clear on is what happens when you liquidate your portfolio and still owe the bank. I don't know if they try and send you to collections or sue you, but I wouldn't want to find out.
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  6. #6
    Registered User gesten's Avatar
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    Originally Posted by caltech21 View Post
    Yes, absolutely. In theory, if you went short on a stock, you have unlimited loss potential if the stock runs. There are tons of horror stories out there.

    Even without playing options, depending on the value of your underlying positions, margin requirements and lending capacity, you can definitely go negative. The stock that comes to mind for me was Vermillion Energy, a Canadian oil and gas company. In Feb of 2020, it was trading right around the $18-20CAD mark, paid a dividend of 15%, and had a lending capacity of 66% (For every $1000 of shares held, you could borrow up to $660).

    In the span of three weeks in early March when **** hit the fan, the stock dropped to under $2. This was a double wammy, in that not only did you lose a massive amount of money, but the lending capacity was switched to 0% (if a stock falls below $3, you can't borrow against it - at least with TD Bank). Using that same example of $1000, your shares would be worth $100 after the price drop, and any stock you purchased based on the lending capacity would push you into negative territory ($100 - $660 = - $560). While this figure is also a function on whether the stocks you purchased with borrowed money have risen or fallen, there is a strong likelihood that you now owe the bank, triggering a margin call (forced liquidation). What I'm not entirely clear on is what happens when you liquidate your portfolio and still owe the bank. I don't know if they try and send you to collections or sue you, but I wouldn't want to find out.
    What’s the point of margin trading if you can go negetive and end up in debt then..?
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  7. #7
    Registered User gesten's Avatar
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    Originally Posted by fupduckbad View Post
    If you are long call (you want the underlying to go above the strike price) then by definition the maximum you can lose is the premium (the amount you pay initially, in this case 100x10).

    If you are short call (you want the underlying to go below the strike price) you can technically lose an unlimited amount however your broker will indeed kick you out of the position before you can lose more than the amount you have on your account.

    Having said this, in very extreme events (for short calls), this might not be possible and you might be ****ed and owe an amount to the broker. This is extremely rare (i.e. when EURCHF floor broke) and it will be very complicated for the broker to claim the moolah. They will only go through such hassle if the amount is consequent (probably more than 100kUSD)
    Confusing af but I’m still learning

    So ur saying if you want to bet on the price going up you can lose more than the 100$ you put in

    And if you want the price to go down you can’t lose more than the 100$ u put in?
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  8. #8
    Catford Crew fupduckbad's Avatar
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    Originally Posted by gesten View Post
    Confusing af but I’m still learning

    So ur saying if you want to bet on the price going up you can lose more than the 100$ you put in

    And if you want the price to go down you can’t lose more than the 100$ u put in?
    It's the reverse with a call

    If you bet on the price going up with a call, it means you are going "long call" (basically buying the call). You are paying a predefined amount, and your profit is technically unlimited. You cannot lose more than the predefined amount. If you want to bet on the stock going up, you can stop reading here to avoid being confused.

    If however you bet on the price going down with a call, it means you are going "short call" (basically selling the call). You can only win a predefined amount if it does NOT go below the strike. You can however lose an unlimited amount but it will not happen since the broker will close your position before it can happen.

    The horror stories mentioned above are extremely rare and again in the very exceptional case that it happens, the broker will have a hard time getting the money from you, especially if it's a small amount. They would rather write it off as bad debt on their PnL and move on
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  9. #9
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    Not sure about stocks etc, but with crypto you definitely cannot go into "debt".

    Or is the people who give you the loan automatically cancel the trade when you lose the 100$ so you don’t go negative
    Yes, that's pretty much what happens (with crypto) - it's called liquidation.
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  10. #10
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    lol OP's main got unbanned so he's stopped making rate my workout threads and has gone back to making investment threads.
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    Imagine giving this chit posting troll a serious answer...jfl
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    I ain't no bitch lowstrife's Avatar
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    Originally Posted by gesten View Post
    What’s the point of margin trading if you can go negetive and end up in debt then..?
    hahahahahahahahahahahahhaha

    Welcome to finance, where you can owe.

    In crypto itself you can't owe. But on the stock market, depending on the broker & product, you can.
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  13. #13
    Registered User gesten's Avatar
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    Originally Posted by TomWanks View Post
    lol OP's main got unbanned so he's stopped making rate my workout threads and has gone back to making investment threads.
    Lmfao this is my only account
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  14. #14
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    1/22 VAMP call 4.20
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  15. #15
    Ayyy lmao phaginator's Avatar
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    But who was margin call OP?
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  16. #16
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    Do they let options trade on margin? That would be incredibly stupid
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  17. #17
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  18. #18
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    Used to OP but here in OZ they changed the rules recently.
    Broker now must have "ZERO BALANCE PROTECTION" - meaning you cant go below your funds available into minus territory.
    Also they changed Bitcoin / Cryptos now too - its no leverage. 1:1 so you cant gear up on those now.
    At least thats in Australia , not sure about other places.
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  19. #19
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    i guess u are not aware of the GUH trader
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