Negative Balance Protection
Forex presents an entirely unique risk to reward ratio. Unlike other leveraged markets, our FX Trading Platform offers negative balance protection. With leverage in the futures and equity markets, a client may lose significantly more than their initial invested equity. In these markets, you may make $20,000 from a $2,000 investment, but you may also lose $20,000 with that same investment.
At FX Trading, the trading system is set to close open positions as your total equity approaches zero. At $500 of remaining equity in a standard account and $50 of remaining equity in a mini account, our system will close your positions. Remember that leverage in any market will accelerate both your losses and gains. However, in Forex, negative balance protection means the potential reward is unlimited and the potential loss is limited to your initial investment.
Understanding Negative Balance Protection at FX Trading
From our FX Trading Platform, you can easily track your total equity and usable margin. By following these two numbers, you\'ll easily be aware of your account status.
Purpose of Usable Margin with FX Trading
FX Trading feels that our competitors close traders\' open positions too quickly. With our FX Trading Platform, usable margin only represents your ability to open subsequent positions. With our 400:1 leverage, you need only $250 of usable initial margin to open each position. If your usable margin reaches or falls below zero, you will be unable to open additional positions, but your open positions will not be closed. Although your usable margin may be negative, you may still have significant equity in your account. We feel that it is premature to close a client\'s position when they still have remaining equity. Because of this, positions are not closed based on usable margin, but on equity.
Tracking the Distance Until Your Postions are Closed
You can easily calculate the distance until your postions are closed. The following equation is an example of the appropriate calculation:
- Assume an initial investment of $10,000 USD into a standard account with 400:1 Leverage.
- Subtract $500 of equity due to our negative balance protection (open positions are closed at $500 or remaining equity)
- You have 5 standard lots open on the GBP/USD
- Each pip the market moves against you, you lose $50 (5 standard lots X $10 per pip per lot)
- $9,500 (initial deposit minus $500 of negative balance equity) / $50 per pip = 190 pips
- The market can move 190 pips against you before your position is closed
If you have any questions with regard to our Negative Balance Protection program, Contact US or speak to a representative via the online chat to the left.
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