Negative balance protection is a regulatory safeguard that caps a retail client's liability at the funds held in the account, so the balance cannot fall below zero. If losses exceed the funds deposited, the broker absorbs the shortfall and the client owes nothing further. It does not protect the deposit itself, which can be lost in full.
Where the rule comes from
The requirement entered EU practice through the product intervention measures adopted by ESMA in Decision (EU) 2018/796 of 22 May 2018. When the temporary measures lapsed, national competent authorities — among them CySEC, which licenses ABF Trade under number 171/12 — adopted permanent national measures on the same terms under Article 42 of MiFIR.
The same package fixes the retail leverage limits that apply to every CFD position: 30:1 on major currency pairs, 20:1 on non-major pairs, major indices and gold, 10:1 on other commodities and non-major indices, 5:1 on individual equities, and 2:1 on cryptocurrencies. Protection is granted per account rather than per position, and it is a retail entitlement: a client reclassified as elective professional gives it up.
What happens when the market gaps
The margin close-out rule closes positions once account equity falls to 50% of the minimum required margin. Closure happens at the next available price, which in a weekend gap or a news gap can sit far below the close-out level.
Worked example, mechanics only. An account holds EUR 2,000 of equity. The market gaps against the open position and it is closed at a price producing a realised loss of EUR 2,600. Equity is now EUR −600. Negative balance protection writes off the deficit and resets the balance to zero. The client has lost the whole EUR 2,000 deposited and owes nothing beyond it. Had the gap been smaller and the loss EUR 900, the balance would simply stand at EUR 1,100 and the protection would never be reached.
How it differs from a stop out
The two mechanisms act at different moments. The stop out comes first: it fires at the 50% margin level and attempts to close positions while equity is still positive, but it fixes no execution price. Negative balance protection is the backstop behind it, and operates only after closure has already left the account below zero.
Neither mechanism limits the loss to less than the money on the account. Negative balance protection caps liability at the deposited amount; it does not make trading low-risk and it does not protect the deposit itself. Sizing the position before entry, and the exit levels set with it, remain the controls over how much of the balance is exposed.
Sizing tool: position size calculator.
