Do you know How does NBP ‘Negative Balance Protection’ work on MT4, MT5 and cTrader?
- What NBP stands for?
- How and When NBP is used?
- Example of NBP
- Each Online Broker covers the loss
- Some brokers does not support NBP
- Use only funds you can afford to lose when trading
What NBP stands for?
For online FX & CFD traders, NBP mainly stands for ‘Negative Balance Protection’.
As it literally states, the policy protects traders from Negative Balance.
How and When NBP is used?
NBP applies when an account balance goes below zero, as in ‘negative’.
At this time, the broker which supports NBP, compensate the exceeded loss and fix the account balance to zero.
This way, the trader doesn’t need to worry about losing more than they deposit in the account.
For the list of MT4 and MT5 brokers which support NBP, please visit the page below.
Example of NBP
For example, if your account balance is at -10,000 USD after unfavorable high volatility in the market, the account balance will be set to zero. Then you can start from the zero balance instead of covering all the losses.
Every broker normally has ‘Stop Out’ level which the system closes all open positions automatically in order to avoid too much risk, but ‘Stop Out’ level often fails to keep the account balance above zero in some cases such as high volatility in the market price or poor risk management.
NBP is kind of insurance for online traders, that assures you to not lose more than they invest.
Each Online Broker covers the loss
The cost for the NBP is covered by the broker which applies the policy.
If the account balance is -10,000 USD, the broker will pay for the loss to fix the account balance to zero.
That’s why, some brokers take extra risk management actions when they expect high volatility in the market due to some event.
In the past, some brokers have even gone bankrupt as they didn’t have enough money to cover all the losses, although this is a very rare case.
Some brokers does not support NBP
NBP is a very important policy for online traders, but you must know that several brokers do not support this policy.
Sometimes NBP is not applicable for traders in certain countries due to regulatory reasons.
Make sure to confirm the trading conditions with your broker before start trading!
For the list of currently available Bonus Promotions, please visit the page below.
Use only funds you can afford to lose when trading
Once you have opened and funded your account, the most important thing to remember is that you can lose your money and therefore you should only use funds you can afford to lose.
Avoid trading with money that you might need for your living expenses.
Instead, you should see your trading money as money that is expendable, and which is always at risk.
Therefore, you should trade with money you can afford to lose in the same way you would spend money on a luxury that you do not really need, so the money spent will be money that you won’t miss.
If your household does not have a second source of income, make sure that you have put aside enough funds for your living expenses and maybe another pot of money for your next venture in case trading is not for you.
In order to better handle the stress and accept losing money when trading, it is important to have a financial cushion so that you can both enjoy winning and staying in the market when things do not go as expected.