Negative balance protection
Also known as: NBP
Negative balance protection: Negative balance protection is a rule or broker policy under which a client cannot lose more than the funds in their trading account; if a loss pushes the balance below zero, the negative amount is not claimed from the client.
When can a forex account go negative?
Stop out levels are designed to close positions before the account runs out of money, but they cannot always do so. If the price gaps over a weekend or jumps on major news, positions can be closed at a price well beyond the stop out level, and the loss can exceed the account balance: stop out.
Where does negative balance protection apply?
Under the applicable UK and EU regimes, eligible retail CFD clients generally benefit from negative balance protection. Elsewhere it depends on local rules and on the broker’s own policy, and professional clients may not be covered. The client agreement states whether and how it applies: how to choose a forex broker.
Worked example
Illustrative only: a retail account holds $1,000 with an open EUR/USD position. Over a weekend the pair gaps sharply against the position, and the position is closed at a loss of $1,300, leaving a balance of -$300. With negative balance protection, the broker resets the balance to zero and does not claim the $300; without it, the client could owe the $300 to the broker.
Sources
- ESMA adopts final product intervention measures on CFDs and binary options, European Securities and Markets Authority
- PS19/18: Restricting contract for difference products sold to retail clients, Financial Conduct Authority
Learn more
- How to Choose a Forex Broker: A Checklist
How to choose a forex broker: regulation, client money protection, total trading costs, order execution, platforms and withdrawal terms, with a checklist.
- What Is a Margin Call in Forex? Margin Call vs Stop Out
What is a margin call in forex? What triggers it, margin call vs stop out, a step-by-step example, the EU and UK 50% close-out rule and how to avoid one.
Related terms
- Stop out
A stop out is when the broker automatically closes your positions because your account no longer has enough equity to support them. It happens when the margin level reaches or falls below the broker’s stop-out level.
- Margin call
A margin call is a warning that your account is running low on equity to support your open positions. Technically, it is reached when the margin level falls to a threshold set by the broker, and it can come as a notification or only as a warning in the platform.
- Segregated client funds
Segregated client funds are client money that a broker holds in accounts kept separate from its own operating money, so that it is identified as belonging to clients rather than to the firm.