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Is it possible to have negative balance for leveraged trading?

Economy & Market

Hey everyone! I’m kinda confused about how leverage works in practice. I know that it’s about borrowing money to buy more stocks than I could with just my own cash. But what happens if the stock price drops a lot? Can my losses end up being more than what I initially invested, leading to a negative balance?

In that case, would I need to deposit more money to cover the loss? And if I’m a bad trader, could I just bail on my broker account and escape from the loss? Is that how it all works? Thanks!

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Posted on : 2025-08-15 02:22:20.321872
 
Duval LC
Great questions—leverage can definitely be a bit tricky at first.

If the stock price drops a lot, yeah, your losses can exceed your initial investment. That’s because you’re not just losing your own cash; you’re also losing the borrowed funds. So, if things go worse, your broker might issue a margin call, which means they’ll want you to deposit more money to cover those losses. If you can’t do that, they could start selling off your assets to recover the borrowed amount.

These days, brokers generally don’t phone call you up for a margin call anymore. Instead, if your account balance drops below the required margin amount, their system will automatically unwind your positions to protect both you and them.

This setup is designed to minimize risk since brokers know that if you can't cover your losses, they might not get their money back. So, in most cases, the worst that happens is your account balance goes to zero, and it's pretty unlikely you’ll end up with a negative balance.

It’s all about keeping things secure for everyone involved. Just keep an eye on your margin levels, and you'll be in a better spot!

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Posted on : 2025-08-15 11:48:14.950565



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