Negative balance protection

Negative balance protection is a regulatory measure or broker policy that prevents a client's trading account from incurring a debt greater than their deposited funds. If market movements cause losses that exceed the account equity, the broker absorbs the additional loss, resetting the balance to zero. This mechanism protects traders from owing the broker money beyond their initial investment.

For retail traders, negative balance protection eliminates the risk of owing money to their broker if a trade goes severely against them, especially during volatile market conditions or 'black swan' events. This protection is particularly relevant for accounts using leverage, as losses can quickly multiply. It limits a trader's maximum potential loss to the funds in their trading account.