10 Answers
<p><br>Negative balance protection is offered by most forex and CFD brokers in Europe, the UK and Australia. It applies if you trade with leveraged products like CFDs, but only retail clients are covered (i.e. professional clients are not). The concept of negative balance protection came into public focus in 2011 when the Swiss National Bank (SNB) stopped holding its currency against the EUR at a fixed currency rate. The Swiss franc rapidly strengthened against the EUR, and a lot of traders shorting the franc ended up with huge negative balances. They basically lost more than they had on their account. </p>
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<p><br>Not every retail forex broker offers negative balance protection. Many brokers claim to offer negative balance protection simply to reassure newcomers that they are a trustworthy service provider. Others do it to lure newcomers because “guaranteed margin call” is a new industry buzzword, much like “ECN” and “STP” brokers.</p>
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<p><br>In today’s complexing environment, negative balance protection can help traders manage volatility and take advantage of high-volume trading sessions without having to worry about going into debt. After all, most traders would agree that low volatility isn’t ideal when trading retail forex because it limits opportunities. However, too much of anything can be equally as bad. In the case of forex, too much volatility can wipe out your trading account in a matter of moments. This is why negative balance protection is so important.</p>
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<p><br>Negative balance protection ensures that traders with losing positions don’t end up with a negative balance in their forex trading account. If you find yourself in a bad trade and are losing money fast, a margin call can save you from going into debt. Simply put, a margin call automatically closes your rapidly dropping open positions.</p>
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<p><br>Negative balance protection effectively serves as a stop loss on your investments, limiting your potential losses to the amount of capital you’ve placed in the account. New traders can use this protection to try their hand at different trading strategies without overextending themselves and going into debt to the broker. If you’re looking for a brokerage platform where you can test new ideas and approaches to trading, you can deposit small amounts of money to minimize your maximum potential losses as you gain experience. At brokerages without negative balance protection, you may be required to pay interest on the debt …</p>
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