Negative balance protection caps your loss at the account balance, per account
With negative balance protection, a retail client cannot owe the broker more than the funds in the relevant account, even if a price gap pushes the account below zero. It became a mandatory condition for retail CFDs in the EU from 2018 and in Australia from 2021; in the UK it sits in FCA rule COBS 22.5.17R.
It applies to retail clients of firms under those rules, and it is calculated account by account. Professional clients and clients of offshore entities rely on whatever their contract says.
- Where it is mandatoryEU, UK, Australia
- A weekend gap, worked throughTwo accounts, two outcomes
- How you can lose itOpt-up, offshore, contract carve-outs
- What to read before tradingFour clauses
1. Where it is mandatory
| Jurisdiction | Rule rule text | From |
|---|---|---|
| European Union | ESMA product intervention: negative balance protection on a per-account basis, giving an overall guaranteed limit on retail client losses, alongside a 50% margin close-out | 1 August 2018, later adopted by national regulators |
| United Kingdom | COBS 22.5.17R limits a retail client's liability for restricted speculative investments to the funds in that account; 22.5.18G treats funds as cash plus unrealised net profits on open positions | Current FCA Handbook |
| Australia | A condition of ASIC's CFD product intervention order; ASIC reported an 88% fall in negative balance occurrences per quarter in the first months | 29 March 2021, extended to 23 May 2027 |
Correction An earlier version said the FCA, CySEC and ASIC required this protection after the January 2015 Swiss franc move. The sources above date the EU-wide requirement to 2018 and Australia's to 2021, so that sentence has been corrected.
2. A weekend gap, worked through hypothetical
You hold two accounts with the same UK-authorised provider: Account A with £3,000 and Account B with £5,000. A position in Account A gaps over the weekend and is closed at the first available Monday price, leaving Account A at −£1,200.
| Question | Answer under COBS 22.5.17R |
|---|---|
| Do you owe £1,200? | No. Liability is limited to the funds in Account A. |
| Can the firm take it from Account B? | The rule limits liability per account, so Account A's deficit is not charged to Account B. |
| What did you lose? | The £3,000 in Account A. |
| Same trade with an offshore group company and no protection clause? | The firm may claim the £1,200, depending on the contract and local law. |
3. Three ways to end up without it
- Opting up to professional status. Under COBS 3.5.3R the firm must warn you in writing which protections you may lose, and you must acknowledge it separately. Read that warning for negative balance protection.
- Contracting with an offshore entity. The rules bind firms in those jurisdictions only.
- Contract carve-outs. Some agreements exclude "abusive trading" or "manifest errors". Read the triggers.
4. Four clauses to read before trading
- The negative balance clause.Does it limit liability to account funds, and for which client categories?
- Exceptions.Which events let the firm claim a deficit?
- Close-out level.The point at which positions are closed; see leverage for the arithmetic.
- The contracting entity.Check it against the register or the licence check.
5. Frequently asked questions
Does it make high leverage safe?
No. It stops debt, not the loss of everything in the account.
How is it different from segregated funds?
It covers losses from your own trades. Segregated funds cover the firm's failure.
Does FXCN score it?
Yes: offering negative balance protection adds 10 points in the risk-and-compliance dimension.