Brokers with Negative Balance Protection

Interest in 'negative balance protection' has surged since the surprise Swiss franc appreciation of 2015. However, only a handful of brokers provide genuine investor protection.

Interest in 'negative balance protection' has surged since the surprise Swiss franc appreciation of 2015. However, only a handful of brokers provide genuine investor protection.

What brokers say

HotForex and FxPro provide genuine negative balance protection by covering your losses. We've sourced wording from their terms and conditions to help you form an opinion:

"HotForex absorbs losses that arise from negative balances by setting the client's account balance to zero."

"FxPro uses an automated transaction monitoring and risk-management system to ensure that a client's balance will never fall below the level of their initial deposits, protecting them from any losses beyond their original investment at FxPro’s cost."

Risk management alternatives

Margin call and stop out levels

All brokers have an interest in limiting your exposure. That's why all Forex trading accounts have a margin call and a stop out level. The stop out is often set below the margin call; however, some brokers can set them at the very same level. These levels are triggered once your account's equity falls below your margin requirements.

As these concepts are best understood through example, let's consider HotForex which applies a 50% margin call and 20% stop out across most of its accounts. If your account's equity were to fall below 50% of the margin requirements associated with your open positions, your broker would request that you:

  • Deposit more money into your account; or
  • Close loss-making trades to limit your exposure; or
  • Open new positions in a way that hedges your current exposure.

If your account were to breach the lower 20% stop out level, your broker would be entitled to close your positions automatically on your behalf, starting with the most heavily loss-making positions. This forces you to realise your losses, but also protects your account from venturing further into negative territory.

Are these tools any good?

Some brokers, like Plus500, claim to offer negative balance protection through their margin call and stop out levels.

"Plus500 customers cannot lose more than the funds they have available on their account. The 'Margin Call' feature exists in order to prevent your account having a negative balance. However, a temporary situation may occur when the balance becomes negative pending the deposit of funds in order to maintain your open position(s), or just prior to your closure of the positions."

So you might ask: is negative balance protection of any value in the presence of a margin call? Negative balance protection is still a valuable feature because margin calls can be delayed, particularly when markets are volatile. Delays in executing your trades may force your equity into negative territory, causing you to lose more money than you invested.

" volatile market conditions, margin calls may be delayed resulting in the possibility of a negative usable margin... If a Stop Out execution has resulted in a negative Balance of the Customer's Trading Account, the Customer remains fully liable for this loss."

Stop loss orders

In addition, you can also use stop loss orders to create your own risk management strategy. Stop loss orders are set at the trade-level, and allow you to close out a position if the market moves against you. Our guide to Forex stop orders has more information.


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