An introduction to negative balance protection
How MTrading adds peace of mind to your daily tradingOpen Account
Why might traders need negative balance protection?
Forex and CFD markets can be prone to volatility, which makes traders vulnerable to unexpected price movements and gaps. When sudden, drastic price movements occur in the instruments being held in an open trade, this can have a significant impact on the value of a trader’s open positions, especially when those positions are highly leveraged.
Just some examples of these price movements include when the Dow Jones fell 1,175.21 points in a single day in February 2018, the Black Swan event in 2015 and, of course, then the financial crisis hit in September 2008. In each of these events, if a trader held a leveraged long position, they could have potentially lost more than their initial deposit, putting them in a position where they would need to pay their debt back to their broker.
Negative balance protection prevents situations like this, by resetting traders’ account balances to zero.
What are the benefits of negative balance protection?
If an open position becomes negative, a broker that offers negative balance protection will automatically move their account balance back to zero at no cost to the trader. This protects the trader’s financial position, even when the market experiences unexpected movements and price gaps.
The benefits of this approach include:
The account balance resets to zero automatically (so no actions are required on a trader’s behalf).
Traders will suffer no losses beyond their initial deposits.
Traders are prevented from falling into debt due to bad trades.
Simply, negative balance protection is the difference between making a loss, and going into debt.
What MTrading offers its clients
MTrading’s negative balance protection ensures that any trader’s risk is limited to the funds they have deposited into their account.
This means that, as a trader, you have the protection you need to trade with confidence.
For additional information, please check out the Negative Balance policy.