Do they exist? What are the rules for negative balance forgiveness in the USA? Has it changed over this past year?
Reason I ask: we all remember the Swiss National Bank de-pegging that happened in January, right? We all remember the horror stories of traders losing their houses and FXCM (one of THE largest brokers in the world!) almost going under because of it, right? Fact is these events are part of trading. Yes, they are very rare events. But there is no 100% guarantee against their occurrence. So if you want to trade FOREX, you need to realize this is a possibility and take measures to protect yourself.
How can I protect myself as a trader? Answer:
Trade SMART with smart stop loss placements and low capital risk amounts.
Capital Partitioning where my entire capital is not with my broker.
Trade with a broker that will protect and/or forgive negative account balances. Remember, with the SNBomb liquidity went to zero, so even if you had a “safe” stop loss there was no one on the other side that wanted to take the opposite position and close out your trade, hence why your account would have gone to massively negative until liquidity returned.
Sooooooo… does anyone have any info on REPUTABLE Forex brokers here in the US that have a clear and iron-clad negative balance forgiveness policy for their clients? I talked to FXCM and their answers were kinda vague but it seems like the rules changed this year and no broker in the States can offer NBF to their clients. Also, is it different in other countries? Maybe I need to move to the UK or Canada if I want to trade safe.
Funny enough I was researching this very topic recently from a UK perspective is seems simple enough, but from US likely things will be different - let us know how you get on.
As FXCM’s representative here on BabyPips, I’m happy to answer your questions and apologize if there was any confusion resulting from your conversations with my colleagues.
Based on CFTC Regulation 5.16 no Retail Foreign Exchange Dealer, Futures Commission Merchant or Introducing Broker may in any way represent that it will guarantee against losses: eCFR — Code of Federal Regulations
This rule applies to all US-regulated forex brokers, and only US brokers are legally allowed to offer forex trading to US residents. That means if you’re trading forex in the US, the capitalization of your broker becomes all the more important. Below are the latest capital figures for US-regulated forex brokers (RFEDs) as reported to the CFTC.
The column that says “Total Amount of Retail Forex Obligation” shows the amount of money retail traders have on deposit with FXCM US which is over 50% greater than what is on deposit with the number 2 and number 3 retail forex brokers in the US.
Yes, only US regulations prohibit brokers from offering negative balance protection. Therefore FXCM’s non-US clients can get negative balance protection of up to $50,000 per client through our UK and AU entities: FXCM Negative Balance Policy - FAQs
Thanks for the info - very informative. Couple follow-up questions for you if I may:
Did CFTC Regulation 5.16 change after or around the time of the CHF de-pegging that occurred in January? Or did FXCM’s Negative Balance Policy for US clients change around that time or after that time? I’m pretty sure FXCM did offer protection prior to the CHF de-peg, correct?
How did FXCM deal with negative balances after the CHF de-pegging? Were all negative balances forgiven? I believe they were not forgiven, correct? Or was it case-by-case?
Sorry if these may be a little “uncomfortable” to answer for an FXCM rep, but I certainly appreciate your transparency. Transparency reflects very well on a broker (at least for me).
Peterma -
I read through that thread of “Going offshore to escape the CFTC”. Couple takeaways from reading that thread… First, every other post is something like “Is Broker X a scam?” or “So I found out Broker X are scammers, don’t trade with them” or “I tried to withdraw funds out of Broker X and they had to route it through a Russian bank which put a hold on the funds and now I’m still waiting for my funds”. When I read these posts my reaction is laughter. Who would’ve thought: trading with some chincy little off-shore broker is fraught with risk. I mean, I’m worried about having my negative balance covered in the event of a Swiss de-pegging. In an event like that who would I trust more to remain solvent: a big US-regulated broker with large capitalization, or some chincy little broker in Gibraltar? Also, by trading with an off-shore broker I’m in a legal grey-zone - also something I’m not terribly excited about.
Honestly I had very less idea about negative balance given I never had to face any issue like that, but it definitely scared me a lot after reading things here. I feel very bad for US people since they have to deal with all the miserable stuff including this. I started off with Instaforex where I got into negative balance plenty of times due to aggressive scalping, but every time it was cleared to 0, but at the time I had no clue that there are some brokers with recovery thing, so thankfully I never had to face this trouble and now I am with Octafx and here too there is negative balance protection, but again honestly it is just after reading on this forum that I know there is negative balance protection.
