What is Negative Balance Protection
A Standard Feature on all easyMarkets Accounts
easyMarkets offers you a set of risk management tools that help you protect your trade, your account and funds. Negative balance protection ensures that your account will never go below zero, a protection easyMarkets has offered as a standard feature at no additional cost since 2001.
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The benefits of negative balance protection
Negative balance protection means that even if markets move rapidly against your trades, your account will not be negative. This is especially important to new traders that may not be familiar with how rapidly markets move during announcements, market openings or general market volatility.
This, in combination with the other risk management tools easyMarkets offers including dealCancellation* and Freeze Rate give traders the ability to better control their risk when on the market.
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.
In today’s complexding 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.
What may happen with negative balance protection
2015 was an especially volatile year for the global financial markets, including retail forex trading. The Swiss National Bank’s decision to remove the three-year old peg of the EURUSD exchange rate in January triggered unprecedented volatility in the markets, causing many brokers to go out of business, while others scrambled for bailouts. Meanwhile, traders were left in the dark as to whether their brokers would demand payment for negative balances.
The SNB blowout in January 2015 highlighted the importance of guaranteed balance protection. The last thing a trader needs is to deal with losses that exceed their investment capital, especially when you consider the composition of the retail forex market. A great benefit of CFD trading is it attracts people from all walks of life, including “social” traders and other laypersons that trade in their spare time.
At easyMarkets we understand that the onus of researching and picking trades is on the trader, but the onus of facilitating trades in a variety of market conditions is on us, the broker. That’s why we offer guaranteed negative balance protection.
Negative balance protection says a lot about a broker
As we mentioned 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.
Traders can easily tell the difference between brokers that just say they offer negative balance protection and those that actually guarantee it. For starters, how long has the broker been in operation? This will tell you a great deal about whether the broker is sufficiently well capitalized and is in good standing. If you’d like to weed out 90% of brokers, simply search for retail forex brokers that have been around for more than a decade. These guys probably offer guaranteed margin calls to save you from going into debt.
