Trading Question

[cntgetmedown]

Does anybody know what happens if you can't get rid of your position? Do you just wipe out? Say you are holding an Apple stock for simplicity. For whatever reason it crashes and you try to get out half way through the drop, but you can't, because nobody will buy from you. Do you just get wiped out? Is there no insurance against this? Can you lose more than is in your trading account?

[RedJoker]

The stock can only go down to 0 so, if you're not leveraged, then you can't lose more than you invested.

If you are leveraged then you'll have had to put up margin for a certain proportion of your investment. As the stock falls the broker will look for more money to finance your position (a margin call), if the money's not available then they will automatically sell the shares. You can also put in your own stop loss, an order to sell your position if the stock goes down to a certain price.

Most stocks have market makers who have obligations to put bids and offers in the market all day. In something like apple there will probably be a decent amount of speculators and automated trading strategies as well so there will usually be plenty of liquidity in all but the most extreme circumstances. In smaller, less actively traded securities, the market maker might pull out of the market for short periods of time (1 or 2 minutes) for various reasons.

Yes, you can buy a type of insurance. Put options give you the right to sell a security at a certain price on a certain date in the future. For example, apple's currently trading at 314.80. The Dec10 260 put is trading 0.36 - 0.38. This means that you can pay $0.38 for the right to sell apple at $260 on the third Friday in December (17th). So, if on the 17th of December apple was trading for $200 you could sell it for $260 making $60, if it was trading at $300 you'd choose not to sell at $260 and only lose the 0.38 premium you paid for the put.

[cntgetmedown]

Thanks for the quick reply . I'm familiar with put options et al (I don't know why I didn't think of it at the time of writing :/).
The reason I came up with this was because I was speaking to a former trader yesterday and he was speaking about losing more than your initial investment when dealing with spread betting.
He must have been speaking of being leveraged in said case, without having insurance against going down more than one's initial investment. It's just the way he said it, as if it were common to be vulnerable to that sort of exposure.

[RedJoker]

Yeah, spread betting is a leveraged position which uses margin so you're not required to put up all the money to finance the position but you'd still have margin calls and the ability to put in stop losses. If it was a spread bet on a stock then your downside would be limited because the stock can still only go to 0, but you may just have had to put up a tenth of the price originally so your risk would be greater than the initial investment.

[cntgetmedown]

I see, thanks for the explanation. That makes more sense now.

[pokerpiet]

Not what u asked but maybe useful to add: When you are trading " big " stocks like apple and u have a order send out to sell if it goes under a certain price, it'll pretty much 100% sure sell somewhere round the price you want.

[tcblade]

Use options : 0