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Here we explain what negative balance protection means for your funds and why you should care.
Let’s say that you deposit A$2000 and go long the AFTERPAY share with 5:1 leverage. The value of your position is $10,000. An unexpected market event causes the price to drop rapidly by 8% beyond your margin call close out level. You suffer a 30% loss due to leverage, meaning a total loss of A$3000.
If you place this trade with a broker that doesn’t offer negative balance protection, you will owe A$1000. The broker has the right to take action against you in order to collect the amount owed.
A broker who offers negative balance protection has risk management tools in place that prevent your account from going below zero. You will only lose your initial deposit and the broker will absorb the loss.
At ThinkMarkets, we understand that no risk management rule can protect traders from extreme volatility during announcements, market openings and unexpected global events. That’s why we take the responsibility to protect your account from going negative.
Risk Warning: Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks and take care to manage your exposure and seek independent advice if necessary. It's important for you to consider relevant legal documents (Product Disclosure Statement and Financial Services Guide) before you decide whether or not to acquire any of our products.
TF Global Markets (Aust) Limited is the holder of Australian Financial Services Licence (AFSL) number 424700. Registered address: Level 18, 357 Collins St, Melbourne VIC 3000 Australia. ABN: 69158361561.
This AFSL authorises us to provide our services to people or businesses that are located in Australia.
The information on this site is not directed to residents of the United States, Canada and Japan and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
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