Negative balance protection is a safety measure now offered as a standard by the top Forex brokers. But first, confirm if a platform offers it as some don’t have NBP. The basic premise is that it stops your account from going into the negative following sharp market movements or gaps.
Essentially, it makes it impossible to lose more than the account balance. What happens if an account is negative? The trader is on the hook to pay the debt owed to the trading platform because it has to use part of its money to keep the trader’s trades open following turbulent market movements. That’s because, with CFD trading, you don’t have to use all of your money to open positions.
It’s possible to earn more than you deposited and equally lose more than your initial account balance. For instance, prices may suddenly dip following an unexpected catastrophe or announcement that rocks financial markets. This one-off event may not trigger stop losses that may be in place.
FBS NBP — What You Need to Know
The FBS negative balance protection is automatically applied to your account, and there’s no need to enable it. Following a huge loss that may make the account balance negative, the platform will bring it to zero and not impose any debt. Learn more about the platform on the FBS review. And to understand the risks of trading, it’s also important to be aware of two other FBS NBP concepts:
1) Margin Calls
FBS offers leverage of up to 1:3,000. But before opening a trade with leverage, you must use part of your account balance. The portion of funds required to open a leveraged position is the margin. There is a simple margin formula traders can use:
(Lot size x contract size)/Leverage = Margin
Let’s solve this problem: What’s the required margin to open at standard lot 1 (100,000 units) of EUR/USD at a leverage of 1:3,000?
(1 x 100,000)/3,000 = 33.33 EUR because EUR is the base currency and USD is the quote currency.
FBS requires traders to have a free margin to be used on open trades. If the margin level is 40% or lower, the platform has the discretion to close losing trades. But they may opt not to close the losing trades until the stop-out level.
2) Stop Outs
FBS will start closing open positions one-by-one based on the biggest losers when the free margin level falls below the stop-out level (20% or lower). Both the stop-out and margin calls are used by the platform to guard against negative balances.
Want to Open an Account with FBS?
An FBS trading account has numerous benefits. It’s even possible to deposit $1 and start trading on the cent accounts. Check out the FBS minimum deposit requirements before getting started.