Negative Account Balance vs Leverage

Hi guys,

I’ve been messing around with a demo using Oanda’s fxTrade practice software. My main concern is owing money to a a broker via a negative balance account b/c of some unforeseen market event. Posts from pre-2015 tend to suggest Oanda used to provide negative balance forgiveness, but they no longer do. FXCM also has some $50,000 coverage, but I’m sure the fine print on that covers 1 of many ways your account could go sub-zero.

I understand how one can go negative using leverage, but what if I’m using 1:1 leverage with just my own cash. I can’t see how my account could go negative in that case. Thoughts? Obviously my respective gains would be smaller by refusing the leverage, but, if my assumption is correct, I wouldn’t have to sell my home to cover the bill either…

If my whole thought process on the issue is lacking, please let me know. Thanks.

IF you trade 1:1 your thought process is right. It is safe to assume that a currency is always worth something. BUT, two points:

  1. When you make the mistake to trade 0,1 Lots instead of 0,01 Lots you are trading 10:1 instead of 1:1 and you can go negative (if the Broker don’ t stop you out in time).
  2. When there is a datafeed glitch that says the EURUSD is -5000 you can go negative as well. But surely this will be forgiven.

So, you are right if your trade execution is indeed 1:1.

Hi Monitored,

Our service includes products that are traded on margin and carry a risk of losses in excess of your deposited funds. The products may not be suitable for all investors. Please ensure that you fully understand the risks involved.

Your forum profile doesn’t mention where you live. That would determine which FXCM entity you can trade through.

FXCM UK and FXCM Australia offer clients up to $50,000 in negative balance protection on forex trades. This policy will apply to negative balances incurred during all market conditions, including exceptional market movements. Each client’s master trading agreement will detail all of the specific exceptions to the Negative Balance Policy.

Some of the key exceptions to this policy include the following: negative balances incurred by legal entities, omnibus relationships, white label relationships, Eligible Contract Participants, Eligible Counterparties and/or Professional Clients (as defined in the client’s master trading agreement) and/or negative balances incurred on share CFD positions or products traded on an exchange.

For full details, please review the master trading agreement if you decide to open an FXCM account.

Note: Negative balance protection is not available to clients of FXCM US or any other US broker due to CFTC regulations which state that a broker may not in any way represent that it will guarantee against losses.

Your reasoning is correct. If you have $1000 in your account for each 1k lot of USD/JPY you trade, then your account can’t go negative even if the US dollar falls to zero.

Note: If you trade 1k GBP/USD, then that is actually 1000 GBP in notional value which is more than 1000 USD. You would need to have $1411.80 in your account for 1k lot of GBP/USD you trade (at the current exchange rate of 1.41180) in order to trade at perfect 1:1 leverage on that pair.

, but what if I’m using 1:1 leverage with just my own cash. I can’t see how my account could go negative in that case. Thoughts?

There might be a way this could happen.
A short position on pair A/B where A doesnt really matter and B is your accounts currency maybe could pull even a 1:1 account negative if B totally collapses.

For full details, please review the master trading agreement if you decide to open an FXCM account.

Please excuse me if I got something wrong Ive read too many brokers TOS over the last few days.
However, let me ask a short question about FXCMs policy on negative balance.
How is the companies opinion on events like the SNB action of 2015? Does it fit in 30.3 or is it a force majeur as detailed in 25(?), which covers just about everything.
Could you also elaborate on what “exceptional market events” are?

Leverage 1:1 is the safest you can go. Always use stop loss and avoid trading pairs which are officially manipulated by central banks (as the EUR/CHF example) or exotic pairs. If you stick to these simple [I]rules[/I] you don’t have to worry about going negative on your account.

1 Like

. Use a stop loss and be willing to lose that money before even thinking of the profit !
I add all my stops up before putiing any trades down so im not sat there glued to a screen wondering how far in the red its going . i already no this ! i am happy for this to happen if needs be. obv would rather make profit . This way you will only ever lose what you put in . ( cash account allways)
Unless you like working for the man .

A slight digression here…. Why do you need to trade with leverage, at all? If you want to take a bigger position, can’t you simply buy currency from the bank and trade? I believe the cost of money through bank would be cheaper than that through a broker.