Brokers that liquidate accounts at zero before negative balance occurs | Forex Factory

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Brokers that liquidate accounts at zero before negative balance occurs

  • #1
  • First Post: Feb 23, 2012 10:37am Feb 23, 2012 10:37am
Hi FF;
today a friend of me warned me to not trade with a broker on high leverage if they do not guarantee to zero the account if a negative balance occours.

So i just checked my broker, and indeed if for any reason (i took the flash crash as example) my account drops negative they will not set it to zero.
I took a fast look arround and most brokers are very vague on this topic.
The only one i found adhoc that states clearly that the account would be set to zero is forex.com.

Quote
Negative Balance Protection

In addition to our 100% maintenance margin requirement, our trading system continuously monitors required margin on your account and will liquidate some/all of your open positions should your account balance fall below the required margin.
These policies and procedures are in place to help to ensure you don’t lose more money than you deposit. However, as an added safeguard, we offer Negative Balance protection and will credit your account to a zero balance if your account goes into negative equity as a result of a liquidation event. This policy protects you up to 50,000 of the base currency of your account.
So are you aware of any other brokers who guarantee that there will be never a negative balance on my account?

PS: im not solely interested in forex, so just show me what you got.

regards,
knoxxxalot
  • #2
  • Feb 23, 2012 11:01am Feb 23, 2012 11:01am
May be Oanda. Contact their support to make sure.
  • #3
  • Feb 23, 2012 11:31am Feb 23, 2012 11:31am
No broker can guarantee that. If they say they do they are lieing.

Brokers are at the mercy of the market.

What happens if your account goes below zero during NFP or other major news spike ?

....you would get a phone call from your broker asking you to pay the difference, which could be sh!t loads of money.

Read the very fine small print from your broker before you open the live account.

Scoobs.
  • #4
  • Feb 23, 2012 11:46am Feb 23, 2012 11:46am
I have chatted with the oanda support, here the chat quote:

Quote
Grace: Thank you for choosing OANDA. How may I help you?
marian: hi
marian: can you guarantee that a trading account with oanda will never have a negative balance, take flash crash for exmple or ny other huge gap
marian: ?
Grace: We do have a margin closeout policy which prevent the trader from losing more than you have deposited.
marian: that was not my question
marian: can you guarante i never have a negative balance when trading with oanda in any case
marian: ?
marian: yes or no
marian: would you set the account to zero? yes or no?
Grace: You won't have a negative balance by our margin policy
marian: please answer my question correctly or provide me a link
marian: its a difference to have a margin policy or uarantee that account will never have a negative balance
Grace: http://fxtrade.oanda.com/help/policies/margin-rules
marian: my question is not answered, take this link for example, forex.com offers a guarantee up to 50k
marian: http://www.forex.com/uk/trading-handbook-trading.html#x10
marian: we offer Negative Balance protection and will credit your account to a zero balance if your account goes into negative equity as a result of a liquidation event. This policy protects you up to 50,000 of the base currency of your account.
Grace: Just one moment please
marian: no problem
Grace: unfortunately we don't guarantee that an account will never have a negative balance
marian: ok thank you
  • #5
  • Feb 23, 2012 11:47am Feb 23, 2012 11:47am
Quoting scooby-doo
No broker can guarantee that. If they say they do they are lieing.

Brokers are at the mercy of the market.

What happens if your account goes below zero during NFP or other major news spike ?

....you would get a phone call from your broker asking you to pay the difference, which could be sh!t loads of money.

Read the very fine small print from your broker before you open the live account.

Scoobs.
So is forex.com lying? or is the any small print? " liquidation event"?
  • #6
  • Feb 23, 2012 11:49am Feb 23, 2012 11:49am
Im just a little scared yet as i trade cfd, fut and forex with very high leverage, cfd`s are held overnight so there could be gaps that could lead to a negative balance.
  • #7
  • Feb 23, 2012 11:59am Feb 23, 2012 11:59am
I found this link, are they also lying? any fineprint?

Quote
I have a negative balance in my account, does this mean that I owe FXCM money?

One of the greatest concerns traders have about leverage is that a sizable loss could result in owing money to their broker. Not with FXCM.

Many forex traders use a lot of leverage, and so run the risk of losing more money than they have in their account. If this happens, your account can have a negative balance, often called a "debit balance". In this case, you will owe money to your broker, and the broker may call in collections agencies or engage in legal action to recover the money owe it.

FXCM doesn't think that's very fair. We operate with a No Debit Balance Policy. If your losses become too large, our system will automatically liquidate all positions immediately at the best available price. Typically, the system can get you out before your account would become negative. In the rare case where it cannot, FXCM will credit your account back to zero. You can never owe FXCM money due to trading losses.

Bottom line: It is FXCM’s policy to credit accounts to a zero balance when debit balances occur as a result of trading.

http://forexforums.dailyfx.com/other...ease-help.html
  • #8
  • Feb 23, 2012 12:00pm Feb 23, 2012 12:00pm
Quoting knoxxxalot
So is forex.com lying? or is the any small print? " liquidation event"?
They are not lieing as such.

But they will say to you "Your account will never be less than zero....under normal market conditions".

Now, it is down to them and what they have written in their small print which determines what is "normal market conditions".

An extreme example would be when NFP news comes out, the market could tank either way and the broker is unable to close your position out to prevent a margin call.

That would be classed as NOT "normal market conditions" and you could well be liable for all loses until they manage to close your positons out.

Scoobs.
  • #9
  • Feb 23, 2012 12:02pm Feb 23, 2012 12:02pm
Quoting scooby-doo
They are not lieing as such.

But they will say to you "Your account will never be less than zero....under normal market conditions".

Now, it is down to them and what they have written in their small print which determines what is "normal market conditions".

An extreme example would be when NFP news comes out, the market could tank either way and the broker is unable to close your position out to prevent a margin call.

That would be classed as NOT "normal market conditions" and you could well be liable for all loses until they manage...
Well, i think i got the point, thank you!
However, i trade for some time but really never considered this risk.
  • #10
  • Feb 23, 2012 12:04pm Feb 23, 2012 12:04pm
Quoting knoxxxalot
I found this link, are they also lying? any fineprint?

http://forexforums.dailyfx.com/other...ease-help.html
They cant say that.

What happens if their system for whatever reason cannot liquidate your positions. At the end of the day you have lost money to someone else.

Are FXCM stating in writing that they will cover all your loses to the market in such cases ?

I think not but hey try it and see what happens.....

Scoobs.
  • #11
  • Feb 23, 2012 12:05pm Feb 23, 2012 12:05pm
Quoting scooby-doo
They cant say that.

What happens if their system for whatever reason cannot liquidate your positions. At the end of the day you have lost money to someone else.

Are FXCM stating in writing that they will cover all your loses to the market in such cases ?

I think not but hey try it and see what happens.....

Scoobs.
TY so much for your time!
  • #12
  • Feb 23, 2012 1:36pm Feb 23, 2012 1:36pm
Quoting knoxxxalot
So are you aware of any other brokers who guarantee that there will be never a negative balance on my account?

PS: im not solely interested in forex, so just show me what you got.

regards,
knoxxxalot
Hi knoxxxalot,

I used to trade with FxPro. A couple of years ago my account was wiped out by a sudden market drop and negative balance of about $10 occurred. They credited my account to zero the very next day. I didn't need to ask them to do that. However I don't know if they proceed in the same way if the case in point is a larger amount of money.

FxPro offers better spreads and higher leverage than FXCM (here is a comparison), but they will give plenty of requotes if you try to trade during volatile market.
  • #13
  • Feb 24, 2012 8:24pm Feb 24, 2012 8:24pm
After ALL the legal problems FXCM got themselves into in the past, I don't understand any trader would even consider doing business with them anymore.

In my opinion a broker is my enemy.
Whatever you do, they will ALWAYS try to grab you by the butt and try to take money away.

BEST advise, keep your account properly funded and don't overtrade.

Taking a broker to court takes a lot of knowhow and a lot of money.
  • #14
  • Feb 25, 2012 2:42am Feb 25, 2012 2:42am
Quoting scooby-doo
No broker can guarantee that. If they say they do they are lieing.

Brokers are at the mercy of the market.

What happens if your account goes below zero during NFP or other major news spike ?

....you would get a phone call from your broker asking you to pay the difference, which could be sh!t loads of money.

Read the very fine small print from your broker before you open the live account.

Scoobs.
I agree with you, a broker who guarantees something like this is either lying, trading against its clients or doing some other unpleasant stuff to its clients. Better choose b.rokers who act responsibly!
  • #15
  • Feb 26, 2012 4:21pm Feb 26, 2012 4:21pm
Quoting scooby-doo
No broker can guarantee that. If they say they do they are lieing.

Brokers are at the mercy of the market.

What happens if your account goes below zero during NFP or other major news spike ?

....you would get a phone call from your broker asking you to pay the difference, which could be sh!t loads of money.

Read the very fine small print from your broker before you open the live account.

Scoobs.
Very true. A broker that can guarantee that is obviously a complete bucketshop and your account is really a demo account with "Live" written on with crayon.

If the market movement is extreme (Or there is a large opening gap) and the broker doesn't have an opportunity to stop you out before a negative balance due to you over leveraging yourself, then you should be liable for the negative balance. If it is a small amount, a reasonable company may leave it so you can re-deposit to fix it, or in extreme cases they can come after you to recover the money. Read your broker's small print in their Product Disclosure/T&C. A broker that genuinely sends your trades to the market will never guarantee that you are not liable for negative balance.
  • #16
  • Feb 26, 2012 6:06pm Feb 26, 2012 6:06pm
Ok... gotta clear up some FUD here that's just bugging the crap out of me:


To everyone here saying the broker who makes the claim of a zero negative balance policy is lying, that's completely absurd. A broker would never put themselves in such a legal shitstorm by making a claim like that and then not following through, heck, most regulators would get involved since quite a few have policies about how the broker presents their services and misrepresentation of account terms.

Now, a broker might say you're "protected" against negative balances thanks to their margin policies or risk system, but they didn't guarantee against them (in Oanda's case.) That's perfectly reasonable considering ONLY YOU are responsible for your trades.

But a broker that does have a zero negative balance policy (like FXCM,) is going to fulfill it or face the chance they get sued (trust me when I say fixing a $1,000 negative balance on an account is better for a broker than paying legal fees...) That's not endorsing FXCM, but the fear being spread about the topic is unfounded and sad.

Having a zero negative balance policy DOES NOT MAKE THEM A BUCKET SHOP. It means they are going to take responsibility for their execution system failing to close out the account at the defined margin/risk levels. Yes, if they are a market maker (AND they didn't hedge your trade) then they can afford to do this, but I know of STP brokers who do this as well (seriously speaking, it's not hard for a broker to have an agreement with their LPs that allow them to better protect themselves against this kinda risk, it's not hard to know when an account is at risk either (fully margined, negative margin available, and around volatile times.))

Further more: You guys do realize that a broker being a market maker isn't in itself a bad thing right? The execution model a broker takes up doesn't make them evil. An evil broker will be evil regardless of their execution model... Take Oanda for example of a market maker without a single NFA/CFTC sanction or charge against them. They aren't perfect, but if anyone here wants to call them a scam artist you'd clearly be living in dream world.

Please, go out of your way to flame the crap out of brokers that deserve it for actually being scam shops.. but don't toss around such accusations and assumptions when you have no idea how legitimate brokers operate while having a zero negative balance policy. We're better than that.
FXGears.com
  • #17
  • Feb 26, 2012 7:04pm Feb 26, 2012 7:04pm
Actually, Oanda guarantees it, its explicitly in the agreement i signed. But thats like 5 years ago, maybe its changed. They also did follow through on it - theres a thread on their forums about it. A few accounts got in to a deficit due to XAU related trades. Their balances were reset to zero.

Such a guarantee probably isnt even a whole lot of risk for Oanda neither. Relative to the profits its peanuts.
  • #18
  • Feb 26, 2012 7:10pm Feb 26, 2012 7:10pm
Quoting shrike
Actually, Oanda guarantees it, its explicitly in the agreement i signed. But thats like 5 years ago, maybe its changed. They also did follow through on it - theres a thread on their forums about it. A few accounts got in to a deficit due to XAU related trades. Their balances were reset to zero.

Such a guarantee probably isnt even a whole lot of risk for Oanda neither. Relative to the profits its peanuts.
That's awesome.

I've never had to deal with a negative balance at Oanda on my own accounts so I was going by the poster who pasted his chat conversation with an Oanda rep.

Glad to know they also have a zero negative balance policy.
FXGears.com
  • #19
  • Feb 27, 2012 1:13am Feb 27, 2012 1:13am
Quoting Jack_Larkin
That's awesome.

I've never had to deal with a negative balance at Oanda on my own accounts so I was going by the poster who pasted his chat conversation with an Oanda rep.

Glad to know they also have a zero negative balance policy.
Well, since Oanda is a market maker, it's no loss for them. They already have your cash in their pocket.
  • #20
  • Feb 27, 2012 8:52am Feb 27, 2012 8:52am
Quoting jafar00
Well, since Oanda is a market maker, it's no loss for them. They already have your cash in their pocket.
They might make the market they deal to you, but that doesn't mean they haven't hedged their net risk exposure that couldn't be matched off internally by other traders.
FXGears.com
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