The 5 Best Forex Brokers With Negative Balance Protection (UPDATED 2023)
Forex accounts tend to lose money owing to high leverage. Risk management is thus crucial in Forex trading. Setting up stop loss and margin calls, for instance, are some of the effective risk management strategies. However, there are also instances where these risk management strategies fail in avoiding huge losses as Forex is a highly volatile market. When the financial markets are hit with huge losses due to volatility, Forex accounts lose money where the account balance may become negative to cover up these losses. The losses are recovered from the trader’s main balance, while the loss exceeds the amount reflected in the account, thus making it negative.
When one’s Forex or FX account has a negative balance, the trader will lose the equivalent deposit amount upon depositing the trading capital. An ideal solution for avoiding a negative balance in one’s trading account is establishing parameters like margin call and stop-loss, among others. However, most often, traders fail to acknowledge the importance of setting up these parameters. And, active protection from negative balances is a must despite the risk management strategies.
What is Negative Balance Protection?
Simply put, Forex negative balance protection implies the trader’s FX account will never get negative irrespective of the financial markets and their volatility. In other words, the main aim of negative balance protection is to safeguard traders’ accounts from getting negative even when their trading positions incur losses. Thus investors (als retail investor with less money investment capacity) will not lose more than what they’ve initially deposited.
Some Forex brokers have a negative balance protection clause where they prevent it from happening via risk management strategies or via pardoning negative balance in the user’s Forex trading account. Thus, choosing Forex brokers offering the latter is very vital.
What Happens if Your Trading Account Goes Negative?
A negative balance simply implies you lost more money than what was originally there in your account. When traders have a negative balance in their brokerage accounts, the broker collects the additional money you owe. Thus, choosing a brokerage with negative balance protection is necessary as FX trading, in general, involves very high risk.
Forex Brokers Offering Negative Balance Protection
Not all Forex brokers offer negative balance protection by pardoning the additional money owed apart from the one reflecting in the trader’s account. Even when they claim to, it is essential to read through the broker’s terms and conditions as only a few brokers pardon negative balances. Most importantly, the brokers offering protection against negative in trading accounts may not have all the features a trader needs. Thus, it is crucial to consider other factors along with their negative balance protection clause. Know more about how to choose the best forex broker from our guide.
Most often, only those Forex brokers who are well-established and have been in the market for more than a decade protect the negative balance. Below is the list of negative balance protection Forex brokers with ideal FX trading tools and features:
- Plus500
- eToro
- XTB
- FOREX.com
- XM
Plus500
Founded in 2008, Plus500 is listed on the London Stock Exchange. It is a highly regulated Forex and CFD broker where some of the regulators include the Financial Conduct Authority, UK (FCA). The Australian Securities and Investments Commission or ASIC.
Plus500 broker is an easy-to-use trading system with a simple user interface. The trading platform is known for its low CFD trading fee. It is also very simple and convenient to create a trading account online where the trader does not have to worry about documentation.
With a few exceptions like the US, Canada, Cuba, Iran, Syria, to name a few, the Plus500 broker is easily accessible from across the world.
Typically, Plus500 has a retail account. However, if a trader satisfies two of the three criteria listed below, they will qualify for a professional account. The criteria are as follows:
- Active trading account with optimal trading activity in the last year.
- The trader has a financial portfolio worth €500,000 or more.
- The trader has sufficient experience in the financial services industry.
Trading with higher leverage is one of the advantages of a professional account. As of August 2018, the leverage ratio ranges from 1:2 to 1:30 for a retail account, while the leverage ratio for Forex is 1:300 in the case of a professional account. Get more details on Plus500 leverage from our review page.
At Plus500, the base currency, by default, is the trader’s national currency. Nevertheless, the trader has the option to change their base currency by calling the Plus500 customer support. Some of the currencies that can be traded on the platform include and are not limited to USD, GBP, EUR, CHF, AUD, and JPY.
Negative Balance Protection
Generally, FX and CFD trading come with high risk and equal chances for the user’s account to lose money. Thus, ensuring the brokerage protects you from negative balance is of primary concern. Plus500 offers negative balance protection for client money protection.
Payment Methods
Bank transfer, PayPal, Skrill, credit, or debit card are methods with which the trader can deposit money into their trading account. The same methods apply for withdrawing money from the user’s account.
Standard bank charges apply for depositing money in the trader account. In the case of withdrawals, except for the first five withdrawals in a free month, a standard $10 is charged for the 6th and consecutive withdrawals in the same month. The minimum withdrawal amount for PayPal and bank transfer, debit/credit cards is $50 and $100, respectively. For amounts lower than the withdrawal limit, $10 additional charges apply.
Demo Trading Account
Plus500 features a demo trading account ideal for new traders. The platform also features video tutorials in the education section. Nevertheless, compared to other FX brokers, these tutorials emphasize the fundamentals of trading FX and CFDs.
Pros and Cons
Pros
- Low CFD and average Forex trading fee
- Offers negative balance protection
- Easy to use trading and charting tools
- The first five withdrawals in a month are free
Cons
- No negative balance protection for professional account holders and traders outside the European Union
eToro
Established in 2007, eToro is an Israeli-based Fintech social trading broker. It is regulated by the Financial Conduct Authority or FCA and ASIC for the UK and Australian traders. For traders from the rest of the world, eToro follows the Cyprus Securities and Exchange Commission’s regulation policy or CySEC.
Unlike Plus500, eToro is not listed in any of the stock exchanges. Nevertheless, it is considered one of the safest Forex brokers as it is a highly regulated broker.
One of the major highlights of eToro.com is that it is a commission-free stock trading platform. The broker’s social trading feature makes it one of the popular choices for both newcomers and professional traders. Social trading or CopyTrader and CopyPortfolio enables a trader to copy other expert traders’ and professionals’ trading strategies.
eToro offers two types of trading accounts: retail investor account and professional trader account. Negative Balance Protection is being provided to retail investor accounts only. If you are from Switzerland, you can open a CFD account from Switzerland (Swiss National Bank (SNB) discontinued minimum exchange rate of CHF 1.20 per euro in 2015. Swiss National Bank introduced the minimum exchange rate during a period of exceptional overvaluation of the Swiss franc (Swiss franc is the currency of Switzerland).).
Compared to Plus500, eToro has very low CFD and FX trading fees. But unlike Plus500, eToro charges a standard $5 fee for withdrawals.
Minimum Deposit Limit
Most often, a Forex broker will have a standard minimum deposit limit. However, in eToro, the minimum deposit amount varies as per the trader’s country of residence. For example: For Israeli citizens, the minimum deposit amount is $10,000 while it is $50 for US and Australian clients. For citizens of China, Hong Kong, Macau, Russia, and Taiwan, the minimum first deposit is $500. Nevertheless, for most countries, the minimum deposit amount is $200.
Payment Methods
eToro has the following payment options for deposits and withdrawals: Bank transfer, payment via credit and debit card, PayPal, Skrill, Neteller, UnionPay, Klarna, and Sofort Banking. Readers are advised to note that eToro does not charge a deposit fee, but conversion charges for currency still apply.
As stated earlier, a standard $5 withdrawal fee is charged for every withdrawal. Unlike other brokers, the minimum withdrawal amount at eToro is $30.
Negative Balance Protection
eToro offers negative balance protection for retail traders for both copy trading and manual trading. Readers are also advised to note that eToro has very high pre-set leverage levels. Apart from negative balance protection, eToro retail account holders are also covered under the Investor Compensation Fund and Financial Ombudsman Service.
Pros and Cons
Pros
- Negative balance protection
- Easy and simple user interface
- Innovative trading tools
- Supports cryptocurrency trading
Cons
- Very high pre-set leverage
- Withdrawal charges apply
XTB
Predominantly a cryptocurrency exchange, Prime XTB facilitates trading a myriad of assets, including and not limited to Forex and CFDs. Compared to Plus500 and eToro, XTB is a recently established exchange and FX broker. Prime XTB enables the trading of fiat-to-crypto, fiat-to-fiat, and crypto-to-crypto currency trading.
Prime XTB charges two types of fees, that is; a trade fee and an overnight fee. As the name suggests, the trade fee is for entering and exiting trade positions while the overnight fee is for holding the trade position overnight. Typically, Prime XTB charges 0.01 to 0.05% trading fee. Compared to other exchanges and brokers, it is fairly low.
Deposits and Withdrawals
As XTB is primarily an exchange, users can only deposit and withdraw bitcoins. While this may seem like a disadvantage, it is believed that XTB offers negative balance protection. And this makes Prime XTB an ideal site for trading a wide range of assets, including Forex and CFDs.
Standard Order Types
XTB has the following standard order types and protection orders for negative balance protection: Market order, limit order, stop market orders, protection orders, and OCO (One-Cancels-the-Other) order.
Information Section
Most of the reliable trading platforms or brokers facilitate an education section that offers trading tutorials in videos, webinars, etc. XBT has an information section that provides tutorials for new traders to understand how trading works.
Pros and Cons
Pros
- Negative balance protection
- Supports trading of various asset classes
Cons
- Stop-loss is not guaranteed
FOREX.com
FOREX.com is one of the major brands owned by the US-based investment company, Gain Capital. It was established in 2001, a testament to its stability despite financial crises that affected many brokers, resulting in their closure due to huge losses.
FOREX.com’s parent company, which is Gain Capital, is listed on the New York Stock Exchange (NYSE works with US regulators such as the Securities and Exchange Commission (SEC) and CFTC to coordinate risk management measures). While this makes FOREX.com a reliable broker, there is also the fact that it is one of the most highly regulated brokers. Some top-tier financial authorities like the Financial Conduct Authority or FCA in the UK and the CFTC (Commodity Futures Trading Commission) and NFA (National Futures Association) regulate FOREX.com in the US.
FOREX.com is known for its low FX trading fees and the wide range of currency pairs. FOREX.com broker is ideal for both manual and automated trading, where the trading system uses technical analysis. For manual trading, the system also enables fundamental analysis.
The broker also offers news feeds and a Forex calendar to help the trader make trading decisions. Thus, FOREX.com is ideal for market research and analysis.
Minimum Deposit Limit
FOREX.com has one of the lowest minimum deposit requirements of $100, which is significantly less than other Forex brokers. The site supports various payment options like bank transfer, payment through debit or credit cards, and PayPal.
Types of Forex Accounts
Based on the trading fee and trading platforms used, there are three main types of trading accounts available at FOREX.com. They are:
- FOREX.com account
- MetaTrader account
- DMA account
Except for the DMA account, the other two account types offer higher spreads and do not charge any commission. DMA accounts offer a lower spread, and the commission charged is $2 for every lot per trade.
Apart from these main account types, other options are based on ownership, like an individual account, a joint account, and a corporate account.
Economic Calendar and Charting Tools
Economic calendars are a very crucial requirement for fundamental analysis. Apart from news feeds and charting tools, FOREX.com offers an economic calendar to help the trader make profitable trading decisions. The broker also provides more than 90 technical indicators and chart editing tools like Fibonacci trend lines and retracement, etc.
Education
FOREX.com also offers a plethora of learning tools for new traders. These include a demo account with virtual currency, video tutorials, fundamental trading articles, trading-based quizzes, etc.
Negative Balance Protection
FOREX.com offers negative balance protection. Furthermore, the broker’s negative balance protection is ESMA mandated where the negative balance is pardoned. Apart from this, the site also features stop-loss orders as a risk management strategy.
Pros and Cons
Pros
- Comparatively low Forex trading fee
- Supports a wide range of currency pairs
- No withdrawal fees
- Innovative tools for technical analysis
- Offers negative balance protection
Cons
- High CFD trading fee
XM
Established in 2009, XM is an online broker owned by Trading Point Holding. Unlike its contemporaries, XM is a globally accessible broker. XM is regulated by the CySEC (Cyprus Securities and Exchange Commission) in general. It is also regulated by the ASIC and IFSC (International Financial Services Commission) of Belize.
Besides XM online broker, Trading Point Holding also owns FCA-regulated Trading.com, which is exclusively accessible by clients from the European Economic Area or EEA.
XM is a simple to use online broker with an easy user interface. It is ideal for both technical and fundamental analysis where, for the latter, the online broker offers news feeds, economic calendars, and charting tools.
Minimum Deposit Amount
At XM, the minimum deposit amount varies based on the type of trading account. Typically, XM broker features five types of trading accounts that differ in terms of the base currencies used, contract size, and pricing. XM account types are as follows: Micro, Standard, XM Zero, XM Ultra Low, and Shares account.
The minimum deposit for Micro and Standard accounts is $5 while it is $100 and $50 for XM Zero account and XM Ultra-Low accounts.
As a global online broker, XM supports the following languages: Arabic, Bengali, Chinese, Czech, Dutch, Filipino, French, German, Greek, Hungarian, Indonesian, Italian, Korean, Malay, Polish, Portuguese, Russian, Spanish, Swedish, Thai, and Vietnamese.
Deposit and Withdrawal Fees
XM does not charge deposit or withdrawal fees, but for withdrawals under $200 using bank transfer, a withdrawal fee of $15 applies.
Negative Balance Protection
As mentioned earlier, CFD and FX trading come with a high risk, which makes having a negative balance protection clause mandatory to avoid losing money. XM offers negative balance protection, but unlike other brokers offering it select nationals or regions, XM offers it to both EU and Non-EU clients. Thus, XM has garnered popularity as a global-level online broker that ensures clients don’t lose money, which is more than the funds present in their brokerage account.
Pros and Cons
Pros
- Negative balance protection for both EU and Non-EU traders
- Supports multiple languages
Cons
- Withdrawal fees
Conclusion
While numerous brokers offer negative balance protection such that the traders’ accounts don’t lose money, choosing an ideal broker is quite tricky. One must consider various factors like whether the broker is regulated or not; the leverage offered, trading instruments available, etc. Thus, when choosing an FX broker, one must heed these factors like leverage, regulations, etc. along with a negative balance protection policy.
FAQs
1) Does IC markets have negative balance protection?
Ans: IC markets do not have negative balance protection.
2) What are regulated Forex brokers?
Ans: Brokerages regulated by financial institutions and top-tier regulators like Cyprus Securities and Exchange Commission, FCA, ASIC, among others, are typically considered to be legal and safe.
3) Why should I choose a broker offering negative balance protection?
Ans: Forex trading comes with a very high risk where trader accounts can lose money. In such instances, having negative balance protection ensures that the trader’s account does not lose additional money than what reflects in their brokerage account.