Negative balance protection guarantees that a trader can never lose more than the funds in their trading account, even during extreme market volatility that causes losses to exceed the account balance. Without this protection, a sudden price gap — such as during a flash crash or an unexpected central-bank announcement — could leave a leveraged trader owing the broker money beyond their deposit.
Regulators including the FCA and ESMA require it for retail clients trading CFDs, making it an important factor to verify when choosing a broker.
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Guide
What Forex Regulation Does and Does Not Protect
Segregated funds, negative balance protection, leverage caps and compensation schemes — what forex regulation actually covers, and what it never does.