Negative Balance Protection: Covering Your Trading Risks

Retail traders who choose Spot trading at Forex usually are using high leverage, often exceeding 100:1. On one hand, it gives an opportunity to earn huge profits when the situation on the market is favorable. But on the other hand, Forex traders can suffer incredible losses if the market will be contrary. If your broker uses a Non-Dealing Desk model (STP/ECN Broker), under some circumstances, you may run into heavy losses especially when the market moves against your expectations. If there is not enough liquidity, it may just be impossible for the broker to close a deal at a stop-loss point or at least at the level where there will be no capital remaining. This is how a negative trading balance may occur. The main problem, in this case, is that trader owes money to the broker and that is the main reason why you should probably look for FX brokers with negative balance protection.

The Best Forex Brokers With Negative Balance Protection

We know how hard it might be to find a brokerage company that offers a Forex broker negative balance protection system and is trustworthy and reputable at the same time. That’s why we decided to provide you with the list of some good Forex brokers that deserve your time, money, and attention. You can see the list below.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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The Benefits of Negative Balance Protection System

Such circumstances may cause a lot of problems for traders. Of course, the broker wants his money back. Very likely in such a situation he owes this money to his liquidity providers. So broker will pressure the client to get the debt back. Theoretically, brokers can go to courts or use the services of debt collecting agencies to get money back. When a Forex negative balance appears, traders are often facing debts many times exceeding their initial capital due to the large brokers with negative balance protection

But there are Forex brokers that offer negative balance protection, that take care of their clients in such cases. The market is very volatile and that’s why the majority of traders may get broken on it. Some brokerage companies now offer negative balance protection. It means that they cover all the risks concerned with a negative balance and its consequences. Such brokers cover any losses that traders may have while trading. This is a great idea for traders. A recent example of a dramatic situation with a negative balance appeared in the January of 2015 when the Swiss Franc sharp move caused negative balances of many traders exceeding $200k. The ones trading with Forex brokers with negative balance protection were lucky, as they weren’t obliged to repay the huge debts. In another case, they would have to repay the huge debts, probably for a long period of time.

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Why You Should Choose Negative Balance Protection Brokers

Unfortunately, not all brokerages can offer negative balance protection to all their clients. It is natural, as when an extreme situation on the market happens, they can’t always cover all the risks of all their clients at once. Still, there are many regulated brokers that offer such a wonderful option – Forex negative balance protection. So if you are choosing a brokerage to trade with, you should check the Terms and Conditions this broker offers. Negative balance protection indicates a very important selling point that will help traders to stay out of the dangerous line. Additionally, you should always be aware of any changes to the Terms and Conditions of your agreement with your brokerage. Changing terms may influence the brokers’ commitment to protecting the trader’s negative balance.

FAQ on Forex Negative Balance Protection

What does negative balance protection mean?

Negative balance protection means that when the market is highly volatile, and generally moves against your trades, you do not lose more than your balance on your trading account. This is definitely a great option because it limits your potential losses, stops you from getting into debt, and helps you reduce the high risks of losing more than the amount of capital that you have deposited on the account. We advise you to always go for brokerage companies that have this option included in their terms and conditions.

What happens if your Forex account goes negative?

In case your Forex account goes negative you will have to cover the minus balance by making deposits to your trading account. That’s when negative balance protection can come into the scene, and brokers who have this option available on their platforms will cover the exceeded losses for you, meaning that you will no longer have to pay the debt as the company does that for you.

Is negative balance protection good?

Yes, the presence of negative balance protection on a specific platforms’ website is definitely a good sign. The main reason behind this fact is that this ensures that traders being in a losing position do not face a negative balance in their trading account. Once you find yourself in a position where it is impossible to save your account from a negative balance, that’s when a margin call can stop you from going into high amounts of debt.