Forex glossary
Negative balance protection
Scope: EU model / Poland
Negative balance protection limits a covered client's aggregate CFD liability to funds dedicated to the protected account. Under the EU intervention model this includes cash and unrealized net CFD profits, excluding assets held solely for other purposes. It does not protect capital from loss; scope depends on applicable rules and agreement.
Illustrative example
How does it work in practice?
A hypothetical protected CFD account has 1,000 EUR in dedicated funds. Preliminary settlement of a 1,200 EUR loss gives −200 EUR; applying protection removes additional debt but does not refund the lost 1,000 EUR.
A case to work through
A loss beyond account funds
Model of a covered EU retail CFD account: dedicated funds 600 EUR, preliminary loss 850 EUR.
- The preliminary balance is −250 EUR.
- Protection concerns additional debt; the lost 600 EUR is not restored.
What follows? Check the protected account and client category in the agreement.
Example boundary: Do not assume automatic coverage of other products or entities.
A useful distinction
Negative balance protection / Stop out
Stop-out closes positions under a rule; balance protection limits liability after settlement.
Check your understanding
Separate debt protection from preservation of capital.
Show the answer and explanation
The additional 150 EUR debt
It does not refund the lost 400 EUR.
Entity, obligations and client protection
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Read the fuller explanation
Related terms
Sources and documentation
- ESMA: negative balance protection scope
Covered CFD account funds and the scope of client liability limitation.
- KNF Decision No. DAS.456.2.2019 of 1 August 2019
The Polish decision defines initial-margin and account-based close-out requirements for retail CFDs, with separate conditions for experienced retail clients.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.