Probably I have made a silly question, but it was useful to better understand the logical process connected with these financial instruments.
I reply to my question below.
Following my previous example, we have:
- Initial deposit: 10,000 €
- Buy share X @ 100 €
- Leverage: 1:100
- Quantity: 500
Let’s now follow the timeline:
At the time t0 the share price is 100€, Thus:
- Total amount: 500 x 100 € = 50,000 €
- Profit/Loss: 0 €
- Margin: 1% x 50,000 € = 500 €
- Status: [10K / (10K +0.5K)] x 100 = 95%
At the time t1 the share price is 80.80 €. Thus:
- Total amount: 500 x 80.80 € = 40,400 €
- Profit/Loss: -9,600 €
- Margin: 1% x 40,400 € = 404 €
- Status: [400 / 404] x 0.5 = 50%
At the time t2 the share price is 80.40 €. Thus:
- Total amount: 500 x 80.40 € = 40,200 €
- Profit/Loss: -9,800 €
- Margin: 1% x 40,200 € = 402 €
- Status: [200 / 402] x 0.5 = 25%
At the time t2 the position will be closed since the deposit status hit the 25% limit.
We can conclude that, in this example, a movement of 19.6% of the market against our position wiped out nearly our entire deposit.
Therefore, even though the initial margin required to open the position seemed to be small compared to the initial deposit, the entire deposit was at the risk.