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In Spot trading at Forex market many retail traders use leverage often exceeding 100:1. Of course, with such leverage there is a chance to make, for example, $1,000 out of $10 if the market situation is fortunate. But to the contrary, if the broker uses a Non-Dealing Desk model (STP/ECN Broker) and if the market will move in unfavorable direction, trader is suffering losses that might be 100 times bigger. For example, if you had a debt of $100, with such a high leverage value you will owe $10,000. Huge difference, is not it? Also if there is a lack of liquidity, the broker simply will not be able to close the deal at stop loss point or at the level with no capital remaining. In such situation there may occur negative trading balance. The trader becomes debtor of the brokerage. This is where FX brokers with negative balance protection become handy.
Typical broker wants to get his money back because in most cases he owes this money to his debtors – liquidity providers. Broker can apply to the courts or ask for help in debt collecting agencies to get money back. Unfortunately for traders, when negative balance appears, they are often facing debts many times exceeding their initial capital. And all these problems were caused by high leverage.
But everything is not that bad for smart traders. Because they work with brokers who don’t want their clients to have an unreal debt or Forex brokers negative balance protection. A lot of traders get broken because market is very volatile. For this reason several brokerages offer negative balance protection to their customers. The importance of such protection lies in the fact that it covers all risks and effects of the negative balance. Such brokers cover any negative balance losses that trader may have. Traders get a huge advantage from negative balance protection! Not so long ago – in January 2015 a dramatic example of negative balance occurred. The Swiss Franc extreme market move effected negative balances of many traders exceeding $200k. Only traders who worked with brokers that offered negative balance protection did not suffer big losses and thus weren’t pursued to repay cosmic debts.
FX Brokers with Negative Balance Protection
That is a real pity that not all brokerages can offer such an amazing service – negative balance protection – to all their traders. The reason for this is that they can’t cover all the risks of all their customers at the same moment if some force majeure situation happens on the market. Nevertheless, there are enough regulated FX brokers with negative balance protection. So if you have not chosen a broker to trade with yet, bear this in mind when selecting the most suitable one. Do not forget to check Terms and Conditions offered by a broker. Negative balance protection shows an essential selling point that keeps traders far from the red line. Also you must always check every change of the Terms and Conditions of your contract with the broker because new or updated terms may influence the responsibility of broker’s negative balance protection.
