Negative balance protection for CFDs at FXCM

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Gyula L.
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Jan 2024
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Is negative balance protection available at FXCM?

Leveraged trading is risky because in extreme cases, your loss on a single trade may well exceed the funds in your account. So how to make sure you don't end up owing money to your broker?

Negative balance protection does just that, and it's a tool that's available for some clients of FXCM. If you're not eligible, use other tools such as stop-loss to minimize losses.

Negative balance protection at FXCM
Gyula Lencsés, CFA
Master of Broker Brilliance | CFD • Forex • Market Analysis

As a trader and financial analyst, I've spent years learning the use of risk management tools, and I also thoroughly tested what's available at FXCM. If you're concerned that a bad CFD trade may wipe out your entire account, here's what you need to know:

  • FXCM offers negative balance protection for some of its retail clients.
  • Those outside eligible areas must meet conditions or do without protection.
  • If you're not covered, set up stop-loss orders to limit losses on your trades.
  • In times of extreme volatility, reduce trade size or leverage (if allowed).

Whether or not you're eligible for negative balance protection at FXCM, it may be a good idea to see if FXCM is on our list of the best CFD brokers in your area. These brokers have competitive fees and great trading platforms, and the majority also offer negative balance protection for some or all of their clients. We have personally tested them all using real money.

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What is negative balance protection?

Negative balance protection is a mechanism that prevents you from losing more money than what you have in your account. Negative balance protection is applicable to leveraged trading, the dominant form of trading for CFDs (contracts for difference) and forex.

But how can you lose more money than what you have? In leveraged trading, it's easier than you think:

  1. Let's say you have $200 in your account, and you use $100 of that to open a CFD position with 50:1 leverage; this would mean an exposure of $5,000.
  2. If the price of the underlying product suddenly drops by 5%, you stand to lose $250. This is not only more than your initial margin, but also exceeds your entire funds in your brokerage account, potentially leaving you with a $50 negative balance.
  3. In such cases, brokers that offer negative balance protection would simply reset your account balance to zero and not demand any extra payment.

Many brokers have additional procedures in place to limit losses. When your potential loss on a trade reaches a certain point, brokers may issue a margin call, demanding that you deposit additional funds to prop up your position. If you fail to do that or if losses spiral out of hand, the broker may forcibly close your position, well before your account balance even approaches zero.

Negative balance protection is therefore often considered a last-resort safety net, for cases when extreme market volatility (or extreme leverage) renders other protection mechanisms useless.

Who is eligible for negative balance protection?

As a general rule, negative balance protection is available only for retail clients, but not for professional traders.

In order to protect retail investors and preserve the stability of the financial system, some of the world's top financial regulators have made negative balance protection mandatory for brokers that serve clients under their jurisdiction. These regulators include

Please note that many brokers operate via multiple legal entities, overseen by different regulators. In such cases, a client living in the EU and served by the broker's EU-based legal entity may be eligible for negative balance protection; while a client living in, let's say, South America, onboarded by an international entity of the broker, may not be eligible.

Sometimes brokers offer negative balance protection even if they're not legally required to do so. In such cases, the service may come with conditions or restrictions - e.g. it may not be applicable to too-high leverage levels, or it may be offered for a limited period of time only as a sign-up promotion.

For more information about the legal background of CFDs, check out our overview of CFD regulations, including whether CFDs are legal at all in your region.

Ways to reduce risk besides negative balance protection

Having negative balance protection at FXCM is great, but what else can you do to minimize potential losses in CFD trading? After all, having an account balance erased to exactly zero probably wasn't your goal. Here are a few options:

  • Set up a stop-loss order; this involves setting a price at a specific distance below the current market price at which your broker will automatically close your position.
  • In a volatile market environment, or if your preset leverage is too high, stick to a smaller position size; so that even a big loss on this single trade will not threaten your entire capital.

Check out this short video for a behind-the-scenes peek into how our experts personally test and evaluate brokers.

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Author of this article

Gyula Lencsés, CFA
Gyula Lencsés, CFA

Gyula is a former analyst expert and Head of Content at BrokerChooser. With over a decade in finance, he led content creation at BrokerChooser and personally evaluated some of our 100+ listed brokers. He opened real-money accounts, executed transactions, and engaged with customer services, offering firsthand assessments. Prior to BrokerChooser, he managed mutual funds in wealth management, trading stocks, ETFs, bonds, commodities, forex, and derivatives. His goal: simplify the hunt for top brokers in a dynamic investment landscape.

Everything you find on BrokerChooser is based on reliable data and unbiased information. We combine our 10+ years finance experience with readers feedback. Read more about our methodology.

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