What is Forex’s NBP? Forex brokers do not require margin call and can trade safely even during strong foreign exchange fluctuations
NBP is the abbreviation of Negative Balance Protection. Protection does not cause any loss larger than the initial investment thanks to the negative balance protection policy.
- 1. XM supports negative balance protection policy
- 1.1. Why account balance becomes negative?
- 1.2. If a margin call is received?
- 1.3. Forex broker’s XM does not make a margin call. Even if the account balance becomes negative, it does not become a debt.
- 1.4. Example of trading using strong foreign exchange fluctuations
- 1.5. Vietnam security companies have not yet supported the NBP
XM supports negative balance protection policy
NBP support of XM, No more losses than investment.
The NBP will be automatically set to zero if the negative balance becomes negative, failing to stop out when the deposit rate is 20%.
Why account balance becomes negative?
In the foreign exchange market, foreign exchange rates will fluctuate dramatically due to incidents such as terrorism, natural disasters, important economic indicators, VIP announcement, …
At that time, if you own the currency in opposition to fluctuations, the losses will spread widely.
Forex brokers usually have a “stop out” mechanism to automatically close orders when the deposit rate drops, but if foreign currency fluctuates wildly, the Stop Out order will not be timely executed.
Similarly for placing a pending order (reverse), as at certain price there is no buyer or seller, if the price is not listed, the pending order will not be executed.
If the required closing order is not timely executed, losses will incur on a large scale , In case of a forced closing order, the account balance becomes negative and the margin call will follow.
Example where Stop out order is not timely executed by market.
If a margin call is received?
The negative balance of the account becomes a debt, and you will need to pay the full amount to the Forex broker.
In addition to Forex trading, other transactions such as stock trading or commodity trading are also subject to similar rules.
Therefore, Forex are usually neither “risky” nor “indebted”.
Forex broker’s XM does not make a margin call. Even if the account balance becomes negative, it does not become a debt.
The deposit balance does not need to be refunded even if it becomes a temporary negative number.
NBP support of XM will offset negative losses so balance will return to zero yen.
Example of trading using strong foreign exchange fluctuations
Using market price where price fluctuates in one direction, you can make a profit like the chart below.
- Large fluctuations in one direction in a short time
- Announcement of labor statistics
- Place a “Buy” order
- Close an order for profit taking
※ Pay attention when trading in the opposite direction or make multiple price swaps between accounts because the rules can cause big losses to XM or will freeze accounts.
Vietnam security companies have not yet supported the NBP
NBP is not applied for Vietnamese security companies yet.
Some foreign investors supports the Zero cut system. Of course XM is also supporting and does not make a margin call.