Negative balance protection Forex brokers simply means that if markets quickly change and go against your current trades, your account will not go into negative balance. In a way this is a safeguard provided by brokers to guarantee their traders, that no matter what they will never lose more money than their initial investment. Negative balance protection makes sure that a trader with a losing position doesn’t result in a negative balance.

It is a really important factor for new traders as they may not know how quickly the markets can change due to high volatility. This balance safeguard, in combination with other tools to manage risks, allows traders to have increased control of how much risk they have while trading the financial markets.

 What are Negative Balance Protection FX Brokers?

Negative balance protection is defined as an option that brokerage firms provide where traders cannot face financial loss more than that already deposited into the account. This means that traders will not be exposed to owing the broker they are investing with.

As an example, if a trader deposits one-thousand dollars to their account, and purchases a share with 5:1 leverages; the trader’s position will account to five thousand dollars. If there is any market volatility and their share price declines seven percent, then the trader would suffer a thirty five percent financial loss from the leverage. This financial loss would exceed the deposited money in the account, and the trader would owe the broker. In this case, the trader would pay the funds that were deposited and the broker would cover the rest of the financial loss.

The list below is Forex brokers that offer the option of negative balance protection, since not all FX brokers provide this option. Some of the FX brokers include: eToro, OctaFX, IC Markets, and XTB.

Negative Balance Forex Brokers List

Broker
Description
Trade Now
Octafx
OctaFX
Regulation: CySec
Min. Deposit: $/€/£ 5
Leverage: 1:500
Spreads: Low as 0.4 pips

Review


FP Markets
FP Markets

Regulation: ASIC, CySEC
Min. Deposit: $/€/£ 100
Leverage: 1:500
Spreads: Ultra Tight from 0.0 pips

Review


NSBroker
NSBroker
Regulation: MSFA, BaFin, FCA,
Min. Deposit: $250
Leverage: 1:100
Spreads: Low as 1.2 pips

Review
XM
XM
Regulation: CySEC,FCA,ASIC
Min. Deposit: $/€/£ 5
Leverage: 1:500
Spreads: Low as 0.1 pips

Review
Avatrade
Avatrade
Regulation: ASIC,JFSA,FSCA
Min. Deposit: $/€/£ 250
Leverage: 1:400
Spreads: Floating from 1 pip

Review


IC Markets
IC Markets
Regulation: ASIC
Min. Deposit: $/€/£ 200
Leverage: 1:500
Spreads: Low as 0.0 pips

Review


Etoro
Etoro
Regulation: CySEC,FCA,ASIC
Min. Deposit: $/€/£ 200
Leverage: 1:30
Spreads: Variable

Review

XTB
XTB
Regulation: FCA
Min. Deposit: $/€/£ 250
Leverage: 1:30
Spreads: Low as 0.1 pips

Review


IQOption
IQOption


Regulation: CySec
Min. Deposit: $/€/£ 10
Leverage: 1:1000
Spreads: Floating from 1 pip

Review


OlympTrade
OlympTrade
Regulation: IFC
Min. Deposit: $/€/£ 10
Leverage: 1:500
Spreads: Low as 0.0 pips

Review
Globex360
GlobeX360
Regulation: FSCA
Min. Deposit: No min Deposit
Leverage: 1:500
Spreads: Low as 1.6 pips

Review

 

What Can Happen When It Is Not Provided?

In 2015, the decision by the Swiss National Bank to remove a peg of the EUR/USD exchange rate that had stood for three years triggered volatility that was unprecedented in the markets. This caused lots of brokers to go bust while other brokers looked for bailouts. Traders did not really know whether the brokers would want payment for their negative balances.

This collapse highlighted just how important it is to have negative balance protection. The last thing you want as a trader is to have to consolidate the losses that have gone over their initial capital.

Is Negative Balance Protection Compulsory?

Offering negative balance protection is not compulsory for Forex brokers. A lot of brokers claim that they offer negative balance protection just to reassure their clients that the can be trusted with their money. Some do it just to lure in the new traders. In order to distinguish the legitimate brokers that offer such protection, you should look at how long the broker has been in business. If they are new to the scene, they may not be all the trustworthy. To weed out the good ones, have a search for those brokers that have been around for over ten years.

When all is said and done, if you want to guarantee protection from negative balances, choose a reputable Forex broker. It would be sensible to choose a broker that has been around for a long time. These brokers are the ones that have stood the test of time and survived all of the economic crises.

Advantages of Negative Balance Protection Brokers

With negative balance protection, traders will benefit that their account will never reach the negatives. New traders will find this extremely essential; since they are not familiar with the trading environment and how easily financial markets are unpredictable. Negative balance protection guarantees traders won’t face losing their trading position, by not ending up with a negative balance in their trading account.

Since financial markets are infamous for its volatility, negative balance protection helps traders manage that, and maximize their advantage with high-volume trading sessions. Both can be done with negative balance protection, all the while traders won’t have to worry about debt. In terms of volatility, extremes of both cases are not ideal. With low volatility in markets, it will limit opportunities; while high volatility could lead to losing of a trader’s funds in a matter of minutes. In order to avoid this, it’s best to invest with a Forex broker that has negative balance protection.

Disadvantages of Negative Balance Protection Brokers

The only issue for negative balance protection Forex brokers is that there would be an increase in brokerage fees, which is inevitable. In order for the broker to also benefit, most financial services providers raise the costs of brokerage transactions, as a form of compensating of the losses that might occur to the trader.

In order to make up for any financial losses, the brokerage firm increases the brokerage fees to the trader, however, not at the same rate.