It is one of the most common questions new traders ask, and the honest answer is: it depends on where you trade and who your broker is. Because forex is usually traded with leverage, losses can build up quickly. In some situations they can even exceed the money in your account. Here is how it works, and how to protect yourself.
Risk warning: Trading forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. You could lose money rapidly due to leverage. Past performance is not an indication of future results. This article is for education only and is not investment advice.
How leverage magnifies losses
Leverage lets you open a position much larger than your deposit. With 30:1 leverage, a $1,000 deposit can control a $30,000 position. A 1% move in your favour would earn about $300. But a 1% move against you would lose about $300, or 30% of your deposit. A 3.3% move against you could wipe out the whole deposit.
Margin calls and stop-outs
When you open a leveraged trade, part of your balance is set aside as margin. If losses reduce your account equity below a certain level, the broker may issue a margin call and then automatically close your positions (a stop-out) to stop losses growing further.
In normal markets, a stop-out usually closes your trades before your balance goes below zero. But in very fast markets, or when prices gap (for example over a weekend or after a surprise central bank decision), the price can jump past your stop-out level. That is when an account can go negative.
What is negative balance protection?
Negative balance protection means the broker will not ask you to pay back a negative balance: the most you can lose is the money in your account. Whether you have it depends on your region and broker:
- UK and EU: regulators require negative balance protection for retail clients trading CFDs.
- Australia: ASIC rules also require negative balance protection for retail CFD clients.
- Other regions and offshore brokers: protection may not be guaranteed. Check the broker’s terms and which legal entity your account is with.
- Professional clients: traders classed as professional usually give up this protection.
Even with negative balance protection, you can still lose all of the money in your account.
How to limit your losses
- Use a stop-loss on every trade, and accept that it can be filled at a worse price in fast markets.
- Risk only a small part of your account on each trade (many traders use 1% or less).
- Use lower leverage than the maximum you are offered.
- Avoid holding large positions over weekends and major news events.
- Choose a regulated broker and check its client protections before you deposit.
For a step-by-step method, read our guide to forex risk management and position sizing.
Frequently asked questions
Can I lose more than my deposit with a regulated broker?
With retail accounts at brokers regulated in the UK, EU or Australia, negative balance protection means you should not lose more than your account balance. Always confirm this in the broker’s terms.
Does a stop-loss guarantee my maximum loss?
No. A standard stop-loss can suffer slippage when prices gap. Some brokers offer guaranteed stop-loss orders, usually for an extra fee.
Is forex riskier than buying shares?
Buying shares without leverage means you can lose at most what you invested. Leveraged forex trading can lose money much faster, which is why most retail CFD accounts lose money. Read Is forex trading a good or bad idea? for a balanced view.
Summary
Yes, it is possible to lose more than you invest in forex, mainly when markets gap and you do not have negative balance protection. With a regulated broker, sensible leverage and strict stop-losses, you can greatly reduce that risk. But you should only ever trade with money you can afford to lose.
Risk warning: Trading forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. You could lose money rapidly due to leverage. Past performance is not an indication of future results. This article is for education only and is not investment advice.