How Negative Balance Protection Works on DotBig Forex and Why It’s Crucial for Traders?

In the Forex space, risk management skill is crucial for all — novice and experienced traders. One of the crucial options in this sense is a protection from negative balance (NBP). It prevents the trading balance from falling below zero in a case of unpredictable market volatility and unexpected cost changes. Any novice trader needs to pick a reliable broker with a good reputation offering this NBP feature.

Nowadays, there are some top Forex exchanges known for their bright reputation and negative balance protection, including DotBig broker. This company stands out from the rest by implementing reliable measures to protect the interests of its customers and maintaining a high level of reliability.

Negative Balance Reasons

Before discovering how to protect funds from negative balances, find out its causes.

Financial market volatility

One of the general causes for a “minus” account balance to come is the volatility of financial markets. It means that the prices of commodities in which the funds are invested can change pretty fast. If the value of an asset drops faster than the customer can sell it, his account balance may become negative.

Margin loan

Another motive for a negative account balance is the use of a margin loan. Leverage allows Forex dealers to borrow funds from a broker to increase their transactions. If investments face big losses, the loan size may exceed the amount of the client’s funds in the account, which will lead to a negative balance.

Lack of funds in the account

Besides, a negative balance may occur because of lack of funds in the account. If a client conducts transactions without sufficient funds in the account, then a trading platform, such as DotBig, can provide him with additional leverage. If trading operations result in losses, the amount owed will exceed the amount of the client’s funds in the account.

Commissions and extra spending

Commissions and additional costs can also lead to a “minus” balance on the brokerage account in rubles. Clients may be required to pay fees for completing transactions or for account maintenance. Fees and other expenses can be deducted from the funds already in the account, which can lead to a negative balance.

Unprofitable investments

Financial contributions that did not bring the expected income or even reduce the cost can also lead to a negative balance. If a Forex participant has funded in assets that have significantly lost value, then his funds in the account may become insufficient to cover losses, which will lead to a negative balance.

It is crucial to consider that a negative balance in the brokerage account can cause serious financial problems. Therefore, investors should carefully analyze their investment decisions and evaluate their financial ability to trade with margin.

What is Negative Balance Protection?

Negative balance protection is a precautionary activity provided by a broker to support its clients. Imagine a situation where you are trading stocks or gold on the market. You invest with the hope of making a profit, but there is always a risk of losses. If the financial markets turn against you and the losses exceed your deposit the negative balance protection comes into play.

The protection of a “minus” balance by DotBig Forex is a policy that ensures that the trader will not face losses exceeding the initial deposit. If suddenly, due to some market movements, the account turns out to have a negative balance, the broker will cover this difference. This means that the balance of a client of a trading platform will never drop below zero.

The NBP provides users with confidence that they are not burdened with great debts exceeding their deposits. Thus, the protection of a “minus” balance is a function that you should pay attention to when picking an online broker, especially if you are a beginner and are just starting to learn to trade.

Other Ways to Protect Traders

There are other ways to protect your DotBig trading account and manage an overall financial risk. They range from portfolio diversification to position size control. This is a quick overview:

• Stop Loss: Every Forex trade will obviously not be profitable; some deals will be unprofitable anyway. Therefore, it is always in the best interest of a trader to add a stop loss to each trade to prevent a sudden and abrupt loss of balance in his account.
• Position size: Trading with the correct number of lots is equally crucial. The lot size and stop loss are two indicators that determine the maximum risk per trade. Therefore, a trader should always calculate the lot size correctly. There are also free position size calculators that users can download and use.
• Diversification: Another helpful method to reduce risk is to diversify deals. For example, instead of spending 10% of the account balance for one trade, a participant can place 5% on one asset and another 5% on another, thereby diversifying the entire trading risk.
• Carefully work with leverage: The only truth is that the brokerage leverage has both pros and cons. It can help to make a decent profit, but at the same time, help the client to destroy his account quickly. Therefore, you should always be careful with the amount of leverage.
• Strategies: This is the most helpful tool to protect your account balance. If a trading strategy leads to a large number of losing trades, then sooner or later, the trader will lose. Therefore, to achieve the best results, it is worth having a strategy with a high or acceptable winning percentage.
• Money management: Using a good risk-reward ratio will also allow a market player to maintain an account balance at a sufficient level. The smart strategy here is that it is better to risk $1 trying to earn $3 than to risk $1 for getting just $1.

Conclusion

Well, a broker with negative balance protection can provide you with peace of mind when trading Forex. Knowing that you can not lose more than you have invested protects you from financial difficulties. DotBig Investments company offers protection against “minus” balance, paying great attention to the safety of its customers. This is reflected in other advantages of the broker, such as a transparent commission structure, high-quality customer support, and advanced trading tools.