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#1 22-09-2017 11:22:57

Admin & Trader
From: Paris - France
Registered: 21-12-2009
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CySEC clarifies protection rules against negative balances (Forex+CFD)

CySEC clarifies protection rules against negative balances for forex and CFD trades that use leverage

Article by Leaprate:

CySEC financial regulator CySEC has issued a clarification statement regarding the provision of negative balance protection to clients of forex brokers who utilize leverage in their trading.

When CySEC announced back at the end of November – which was first exclusively reported at LeapRate a week prior – that it was changing the rules for forex and CFD brokers, banning client bonuses and instituting a soft 50:1 leverage limit, another somewhat overlooked provision was the institution of negative balance protection.

Negative balance protection means that clients can never lose more than what they have on deposit with the broker. If a leveraged position deteriorates rapidly, such as through a price spike, a client who employed leverage can theoretically have negative equity in their position or account.

Negative balance protection can be instituted on a per-trade basis, or an overall account basis. In its current clarification, CySEC has taken the more lenient route (as far as brokers go), stating that it will only be instituted on a per-account basis. Meaning, that a client who has one large leveraged position within a portfolio can still lose more than the value of the initial position. Any other positions or funds the client has with the broker can be used to cover that negative balance. But, on the whole, a client’s account can never enter negative territory. If it does, the loss falls to the broker, not to the client.

The full CySEC clarification announcement from earlier today follows:


Further to Circular 168 (the “Circular”), the Cyprus Securities and Exchange Commission (‘CySEC’) wishes with this Announcement to clarify that the negative balance protection referred to in Paragraph 3(iii)(c) of the Circular, applies on an account basis and therefore CIFs should take the necessary measures, in order to ensure that the maximum loss for the clients on an account basis, never exceeds the clients’ available funds in the specific account.

Nicosia, 18 September 2017

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