Brokers with Negative Balance Protection

Yesterday, it turned out that the most important thing in forex is to trade with a broker that has a Negative Balance Protection. This way, you do not owe the broker money in case you have an account with a negative balance.

I think this is somenthing extremely important. Why? Because I'm convinced that in some cases at some brokers the accounts have a negative balance of -100k or more.

Which Brokers offers such a protection?

I know two Brokers:

- Oanda
- FXPro

Statement from Oanda:


In the wake of this unprecedented market event, OANDA demonstrated its ongoing commitment to doing right by its clients. Despite suffering losses and vanishing liquidity in the institutional hedging market, OANDA remained true to its 14-year legacy of transparency, integrity and fairness to our clients. OANDA did not re-quote or amend any CHF cross client trades. We even took the further step of forgiving all negative client balances that were caused when clients could not close out their positions fast enough (where permitted by regulations).

Statement from FXPro:

All negative balance accounts which currently remain on the books of the broker are in the process of being corrected, as the company re-commits in its announcement to negative balance protection as outlined in the firm’s terms and conditions.
“While the company has been affected by the events of what is now being called Black Thursday, FxPro remains fully operational and solidly capitalised, as ever. It is business as usual: deposits, withdrawals and the entering of positions continue as on any other trading day.
- See more at: http://forexmagnates.com/fxpro-remai....gQL3L36X.dpuf

as for oanda i got them on chat
- in practice they forgive all the negative client balances for this event
- in theory you are liable for all the margin calls, they dont told me they have a no negative balance policy

as for fxpro they have a negative balance policy for the moment

hopes they can keep it in the future. if it that so, it will gives them a huge advantage for short time frame high leveraged traders

They do for UK accounts, atleast the client agreement i signed years ago says so.

thx for the info Shrike
true that in oanda website it's written:

Negative balances cleared*
*Where permitted by regulations

I wonder which country regulation dont allow that and hope no trader is locked in negative balance.

FXCM also has a negative balance protection. The other broker I know who has this protection is FXpro. Oanda doesn't have this protection as far as I know. It was their decision to credit the negative balances. But it was not mandatory.

However a broker like FXCM who explicitly says on their site and in the risk disclosure that they will credit debit accounts don't have the legal rights to recover money from traders, right? I've made an account with FXCM only for this policy but there are members in the FXCM thread that think they can sue the traders to recover the money. If this is the case then not even brokers with negative balance protections don't guarantee you won't lose more than the deposit.

excerpt from FXCM client agreement

Spot Forex Trading
1. Effect of "Leverage" or "Gearing"
Forex Transactions carry a high degree of risk. The amount of Initial margin may be small relative to
the value of the foreign currency so that transactions are 'leveraged' or 'geared'. A relatively small
market movement may have a proportionately larger impact on the funds you have deposited or will
have to deposit: this may work against you as well as for you. You may sustain a total loss of initial
margin funds and any additional funds deposited with the firm to maintain your position. If the market
moves against your position or margin levels are increased, you may be called upon to pay substantial
additional funds on short notice to maintain your position. If you fail to comply with a request for
additional funds within the time prescribed, FXCM in its sole discretion may liquidate any or all of your positions at a loss.

4. FXCM’s margin policies and/or the policies of those banks/clearing houses through which trades
are executed may require that additional funds be provided to properly margin Trader’s account and
that Trader is obligated to immediately meet such margin requirements.
Failure to meet requirements may result in the liquidation of any open positions with a resultant loss. FXCM also reserves the right
to refuse to accept any order or guarantee a market in which to offset

An initial deposit of US$1,000 may enable
the trader to take a maximum position with US$50,000 notional market value. The funds in an account
trading at maximum leverage can be completely lost, if the position(s) held in the account has more
than a one percent swing in value


nowhere is mentionned you can lose more than your deposit


doesnt seems to have any mention that you are liable for more than you deposit.
so i dont think there is a risk they can sue you

It's also possible that plus500 has a negative balance protection. I don't see any terms and conditions only some PDF about risk in which they say you can't be left in debt.

http://www.plus500.com/Docs/Plus500C...sureNotice.pdf

However they don't say explicitly they will credit the debit accounts (like FXCM and FXpro).

I think in practice almost all brokers cover the losses from negative balances. Even if they don't say this on their site. Ironically FXCM who said on their site they will reset the debit balances hasn't done this yet. Market makers are the brokers that are the most safe. Because they don't have too many problems if something huge happens in the market like EUR CHF move. I think the most dangerous ones are the ones who want to know a lot about you when you open an account (for example FXCM wanted to know a lot of information).

What do you think about Activtrades? They have a negative balance protection and pretty low spreads eur/usd 0.94 average.
I'm taking them into consideration for a new account.

I will try to give you a few more tips in searching for a broker that won't sue you.

Brokers that tell on the first page that you can lose all your investment are safer than brokers that tell on the first page you can lose more than the deposit. All brokers have in their terms and conditions that you can lose more than deposit but those who tell you this on the first page are higher probability they will sue you.

Off-shore brokers it seems to me are safer than other brokers.

Brokers that look less serious are safer than serious brokers, the ones that are obsessed with the law (for example brokers that tell you they may take legal action if you send them false informations or something like this) or who want to know a lot of informations about you. These serious brokers have a higher probability they will sue you to recover the losses.

At least this is my opinion. I think especially what is written on the first page about how much can you lose is a good clue of whether they are going to sue you or not.

Pepperstone's website claims: "Negative balance protection, automated Risk Management System"

Source: https://pepperstone.com/trading-acco...conditions.php

IronFX

every broker which pretends to have a negative balance protection is in fact a market maker , so no problem from their side as they won't loose money as they are the ones creating the market for you.

Looking at this... I wouldn't be surprised if the USA gov't lowers the maximum leverage ratio OR pass laws stating that if leverage is offered, consumers are not liable for negative "below deposit" accounts.

They sound pretty good (though MT4... sigh). Anyone with any experience of these guys? I'll be in the market for a new broker after the first shockwave subsides this week. It seems the tide went out and my current broker wasn't wearing any pants.

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

This is most likely the case, which then opens up a whole can of worms......because if an ECN broker took on the negative balances then it will have to recover those one way or another, either by raising its commissions or something else, otherwise it could potentially endanger their financial stability in the long-run. I think ECNs should consider getting some sort of insurance to protect themselves & their traders against exceptional events like the other day, otherwise the ECN model seems fraught with danger.

Yeah, leverage lowered to 10:1 & minimum deposit requirement raised to $25,000! Of course, only to "protect" people........from freedom!

As you already know, there are three well-known models a broker can use:

- ECN. What ECN means is that your order is visible in the Order Book. LMAX for example is a real ECN, you can test this by placing a small Limit order on a live account, you will see that order in the orderbook on their Homepage. Other traders can then trade against your order, the Price will not go higher or lower until your order has been executed. FXOpen.com.au is a real ECN as well.

- STP. What STP means is that as soon as the price is hit, they sent your order straight to somebody else, and make a profit from the commissions. You can test if the broker is STP or ECN by placing a sell limit order at for example 1.3700. If the ask goes above that price for example ask 1.3702 bid 1.3698 then it's not ECN, it's STP execution.

- Market Maker. What this means is that they take the other side of the trade, when you lose they win and vice versa.

Thing is, unless you are a professional FX shop or operating a hedge fund or have any requirements regarding order execution, it absoultely does not matter which of the three models the broker uses since you will most likely will lose anyway, regardless of those models.

I do not see any downsides by using a market maker. I use Market Makers since years and never experienced any issues. If you are unhappy with a brokers services, you can always go to somebody else.