Leverage Risk Question

Hi,
I’ve read and reread this topic and the calculations several times and it’s still not going in. Just after a dummies guide explanation with an example.

I understand how leverage works on CFDs in that you can open a position by depositing the percentage of the full value. But I am confused as to how the risk or potential loss works.

I.E. (ignoring currency conversions, so presuming all in £)
I have an account of £100 and open a position on x1 Gold at £1000 but as gold has 5% margin I only put down £50.

  1. The price goes up to £1025 and I sell, so I make £25. and my balance is £125 now?

  2. The price goes down to £975 and I sell, I lose £25 so my balance is £75 now?

  3. The price goes down to £200 and I sell, I lose £800 so my balance is -£700 now?

In theory though with number 3 as Gold drops, so will my Margin Indicator and when that gets to 25% Trading 212 will close the position automatically? Does this mean my account would never be negative and owing money?

@jaykay Your assumptions are correct. Cases 1) & 2) are right.
As for case 3), you’ll never have a negative balance because your positions will be closed once the margin indicator hits 25%. If there happens to be a gap at the opening of the markets & there’s no way to close a position beforehand, you still won’t end up owing money because we have a negative balance protection policy.
In a nutshell, it’s impossible for you to ever end up owing money.

3 Likes

Thanks David, appreciate the fast response, that is good to hear.

So presumably there is nothing stopping me from day trading say US Stock via CFDs (therefore not incurring any fees like over night holding) and withdrawing any profits I make during the week at the end of the week, keeping the account balance at the same level. Main issue is then managing the margin indicator on trades and dealing with any losses during the week.