Negative Balance Protection

[John26]

All,

I am hunting hi and low for a descent spreadbet broker that offer negative balance protection.

I was looking at www.cmcmarkets.co.uk, sadly they don't offer it.
www.activtrades.co.uk do I think but only have mt4/5 yuk!
Not sure IG, cityindex do, but I have heard some bad things about them, so...

Looking to trade indices and stocks to hold 3 to 7 days, with the odd intraday in and out.

Broker also has to be UK based, fca regulated, honest and friendly

Please - Help! :|

 

[hhiusa]

All,

I am hunting hi and low for a descent spreadbet broker that offer negative balance protection.

I was looking at www.cmcmarkets.co.uk, sadly they don't offer it.
www.activtrades.co.uk do I think but only have mt4/5 yuk!
Not sure IG, cityindex do, but I have heard some bad things about them, so...

Looking to trade indices and stocks to hold 3 to 7 days, with the odd intraday in and out.

Broker also has to be UK based, fca regulated, honest and friendly

Please - Help! :|

Why trade a financial instrument class where you negative balance protection?

 

[trade2bpro]

Does it required any thing as VIP account for negative balance protection ? I don't see too many broker offer that advantage? Most brokers close your account after balance reach stop-out level.

 

[metrader]

You may be aware that lot of brokers make it difficult to withdraw the funds if you ask them to send money to any other bank account apart from the one you funded your trading account from.

So what would happen if for example you close your bank account in case you end up with a negative balance on your trading account. Can you quote regulations (brokers use when refusing to give money back) that prevents you from sending them money from a different account?

Just an idea:idea:

 

[itspossible]

Why trade a financial instrument class where you negative balance protection?

Are you seriously asking that question mate

 

[hhiusa]

Are you seriously asking that question mate

Somebody has to. Some people actually pay attention to the risks. Even you are trading CFDs, you should not be overexposing your account to the point where that is possible.

At that point, if you do not care about blowing up your account as you all seem to love that expression, then you may as well just go to the race track and bet it all on the ponies.

 

[darktone]

Somebody has to. Some people actually pay attention to the risks. Even you are trading CFDs, you should not be overexposing your account to the point where that is possible.

At that point, if you do not care about blowing up your account as you all seem to love that expression, then you may as well just go to the race track and bet it all on the ponies.

do you keep all of your risk capital in your tarding acount/s H?

 

[itspossible]

Somebody has to. Some people actually pay attention to the risks. Even you are trading CFDs, you should not be overexposing your account to the point where that is possible.

At that point, if you do not care about blowing up your account as you all seem to love that expression, then you may as well just go to the race track and bet it all on the ponies.

he is paying exceptional attention to risk
he can only lose whats in his account and no more.

 

[hhiusa]

he is paying exceptional attention to risk
he can only lose whats in his account and no more.

I do not trade CFDs because of the need for negative balance protection and here in the US we don't have to worry about stamp duty.

With equities and forex, you have to be pretty stupid to blow your account, unless you are foolish enough to use leverage and overexpose yourself.

If you have $5,000 in account you should be exposing the entire $5,000 much less overexposing it. If you use greater than 5:1 leverage on a $1,000 trade, you are overexposing your account.

 

[darktone]

so do you keep all of your risk capital in your trading account/s H?

 

[hhiusa]

so do you keep all of your risk capital in your trading account/s H?

Just to be clear about what we are considering as risk capital.

Risk capital consists of investment funds allocated to speculative activity. Risk capital refers to funds used for high-risk, high-reward investments such as junior mining or emerging biotechnology stocks. Such capital can either earn spectacular returns over a period of time, or may dwindle to a fraction of the initial amount invested if several ventures prove unsuccessful.

Even though, I slightly disagree with this definition, by this definition I am undertaking more speculative activity than hedging activity. So, most of my capital involves risk capital. I do not really trade futures, options or CFDs as I consider them to involve solely pure risk as opposed to speculative risk.

I do frequently invest in the biotechnology sector. If you wanted to know how I trade you could always look at my journal.

The main purpose of speculation, on the other hand, is to profit from betting on the direction in which an asset will be moving.

This definition describes my behavior in the markets well. I post a condition for which direction I think the market will move and if the condition is met, the trade is placed. I cannot understand trading one single financial instrument, as this inherently increases pure risk.

 

[Forexmospherian]

Hi hhiusa

I have to disagree with you - as you might guess - but rather than getting into another slanging match can I ask a few questions and points first

1. Am I correct in saying that not all American brokers use segregated accounts for the clients money ?

2. Lets say my capital account size today is approx $70k. With you only using leverage of 5:1 you would need to deposit $1,400,000 in your capital account to be able to have my stake buying power?. You might say I don't need that amount but a typical US trader on a maximum of 50:1 ( is it 20:1 on minor FX pairs) would need to have either $140k minimum in their account or even $350K to trade at my size on FX?

3. Black Swan events normally only happen a few times a decade - - so the maximum I would lose in the UK if suddenly say the EA dropped say 3000+ pips in 4 hrs is my whole account ie $7OK . An American trader could lose even on a lot less leverage even 20% of his account - that could still be more money then me

4, If you had say a $50k account in Europe with a negative balance protection - many traders would not have to go bankrupt or sell the house or all their assets. In the US if all goes pear shape can many retail traders afford to lose $200k -$500k and not have to sell all their other assets as no protection on their total capital account - and even worse what happens if the broker goes bust with all your money in a non - segregated account ?

5. Retail trading is totally different to Commercial Bank Trading . The US Banks convinced the US government to protect retail traders by reducing leverage dramatically. That was only because they wanted all traders to have to deposit more money into their "coffers" - and of course again the corrupt and devious banks won and the poor old US traders suffer.

I look forward to your reply to my questions and points

I am not being arrogant, rude or condescending in any way - so please point out how you see it - so I can understand or learn more on something I find very interesting why so many US traders have a deluded view on retail leverage

Regards


F

 

[Forexmospherian]

http://www.investopedia.com/articles/forex/08/margin-leverage-forex.asp

I disagree with some of the points but will get around to my view maybe later on or tomorrow

I don't recommend really high leverage - unless you are very experienced with a small "throw away account" might be $200 might be $2k to some - and then with no negative balance guarantee then its the MAXIMUM YOU CAN LOSE.

If you can double or treble the capital over a week or month - then take the capital amount out - and do the same again - and again and again . If you are able to do it 3 or 5 times before you take it to far and blow your account - its possible to make massive gains with low risks.

Its controlled gambling - ie still use money management maybe go up to 5 or even 10% stake size of small capital - get leverage of t least 400 to 1 and rest assured - what ever happens - you cannot lose more than $200 or what ever capital you deposit.

For some experienced traders - its a separate account that they use just to take advantage of their so called very high probability trades - ie the AAA+++ ones that they feel are over 80+% certain to happen

What ever you do go for RR's over 3 if possible and for me always use soft or hard stops and take small losses and get on finding profitable trades rather than making 250 pips profit over a week with a hard stop of 200 pips - waste of time.

Don't even think about doing this on FX unless you are confident you have a trading history of over 2 or 3yrs showing you are consistent and profitable - whether its just 50% per annum or 300% + per annum ( non compounding results )

Again, I must repeat retail FX trading is a totally different ballgame to the commercial Hedge Funds/ bank trading - don't compare risk or leverage or ROR - you will be totally mislead


F

 

[hhiusa]

Hi hhiusa

I have to disagree with you - as you might guess - but rather than getting into another slanging match can I ask a few questions and points first

1. Am I correct in saying that not all American brokers use segregated accounts for the clients money ?

2. Lets say my capital account size today is approx $70k. With you only using leverage of 5:1 you would need to deposit $1,400,000 in your capital account to be able to have my stake buying power?. You might say I don't need that amount but a typical US trader on a maximum of 50:1 ( is it 20:1 on minor FX pairs) would need to have either $140k minimum in their account or even $350K to trade at my size on FX?

3. Black Swan events normally only happen a few times a decade - - so the maximum I would lose in the UK if suddenly say the EA dropped say 3000+ pips in 4 hrs is my whole account ie $7OK . An American trader could lose even on a lot less leverage even 20% of his account - that could still be more money then me

4, If you had say a $50k account in Europe with a negative balance protection - many traders would not have to go bankrupt or sell the house or all their assets. In the US if all goes pear shape can many retail traders afford to lose $200k -$500k and not have to sell all their other assets as no protection on their total capital account - and even worse what happens if the broker goes bust with all your money in a non - segregated account ?

5. Retail trading is totally different to Commercial Bank Trading . The US Banks convinced the US government to protect retail traders by reducing leverage dramatically. That was only because they wanted all traders to have to deposit more money into their "coffers" - and of course again the corrupt and devious banks won and the poor old US traders suffer.

I look forward to your reply to my questions and points

I am not being arrogant, rude or condescending in any way - so please point out how you see it - so I can understand or learn more on something I find very interesting why so many US traders have a deluded view on retail leverage

Regards


F

I am busy at the moment so I will reply completely later. I would be happy to act civil if you are willing to do the same.

Saying you're not trying to be arrogant is pointless if you are still acting arrogant. I think it is arrogant and rude to say that all American traders are deluded concerning leverage. Do you have any proof to that effect.

You say that it would take some with $350,000 to trade your level. If you don't have $350,000 in cash you're not trading at that level either even if you are using leverage. Speaking of delusional that is delusional. If you only have $70,000 you should only be using $70,000.

If you were using 5 to 1 leverage with an account size of $70,000, how did you come to the figure of 1.4 million?

It also seems as though you did not fully comprehend what I posted. There should be no need for negative balance protection because you should not be trading with financial instruments that require it. Leverage is just going to compound that problem.

I swear the two most popular expressions on this forum are black swan event and blowing up your account.

 

[Forexmospherian]

I am busy at the moment so I will reply completely later. I would be happy to act civil if you are willing to do the same.

Saying you're not trying to be arrogant is pointless if you are still acting arrogant. I think it is arrogant and rude to say that all American traders are deluded concerning leverage. Do you have any proof to that effect.

You say that it would take some with $350,000 to trade your level. If you don't have $350,000 in cash you're not trading at that level either even if you are using leverage. Speaking of delusional that is delusional. If you only have $70,000 you should only be using $70,000.

If you were using 5 to 1 leverage with an account size of $70,000, how did you come to the figure of 1.4 million?

It also seems as though you did not fully comprehend what I posted. There should be no need for negative balance protection because you should not be trading with financial instruments that require it. Leverage is just going to compound that problem.

I swear the two most popular expressions on this forum are black swan event and blowing up your account.

hhiusa

I take your point and agree with some of your comments as well

Remember this site is a retail traders site and not a commercial trading group discussion forum - so the subject covered will be maybe unusual for you as I think you are trading using rules commercial institutions would use.

I use 100:1 leverage on a approx $70K on one of my accounts

Now if I only uses a leverage as you and Banks recommend - I would need to deposit 20 times more capital - ie $1,400,000 - to trade at my maximum lot size.

2 years ago I was using leverage of 200:1 - but I did not use all of it and I have in the past had small account with 500:1 leverage - and have not blown any account up since my first year well over a decade plus ago.

If I only used say 10:1 leverage - my ROC would be drastically reduced

OK if I was not making consistent money but was say a "break even or only 10% a year" trader - then lower leverage might be an aid.

I look forward to you explaining how you work out your stake size - ie is it still just 1 or 2% of your capital base on just 5:1 leverage - ( mines 0.3 to 1% ) nowadays on leverage of 100:1 - because of tight stops - but with you not using stops then for example on your GU buy trade - I can only see you making small returns even if you exited when it was up over 140+ pips ?

Also because I am only FX - never traded any other instruments - I am totally naive on all other forms of non FX trading - so I am sorry I can only relate to my field

No rush

Regards

F

 

[darktone]

risk capital is just the sum of money youve set aside to risk in the market in any way you choose.
any monies you have on deposit with a broker is at risk, position or no. a trader can have 1/10 of his risk capital with his broker and the other 9/10 under their pillow. they can trade that account 10x and remain sized overall the same as a 1x trader, but with much less counterparty risk of the broker.

Re no neg balance.
Nothing is guaranteed, but, say the OP has 10% of his r capital with a no neg balance broker. Hes plodding along 1 to 1 overall when the hes buttficked swiss style!..
At the very least, he has the chance of not having to fund the account to cover those losses.

 

[hhiusa]

risk capital is just the sum of money youve set aside to risk in the market in any way you choose.
any monies you have on deposit with a broker is at risk, position or no. a trader can have 1/10 of his risk capital with his broker and the other 9/10 under their pillow. they can trade that account 10x and remain sized overall the same as a 1x trader, but with much less counterparty risk of the broker.

Re no neg balance.
Nothing is guaranteed, but, say the OP has 10% of his r capital with a no neg balance broker. Hes plodding along 1 to 1 overall when the hes buttficked swiss style!..
At the very least, he has the chance of not having to fund the account to cover those losses.

That is not how I trade and it is not how I recommend anyone trade. I prefer investopedia's definition to yours. I consider the money I have with my brokerage firm to be, for all intensive purposes, in another universe, separate from any other assets. I treat all my assets as if they were in separate universes unable to interact with each other.

I do not think that people should invest with money that they cannot afford to lose. Having negative balance protection means that you are almost betting upon the fact that at some time you will blow up your account and that you are doing trading that endangers your account of this happening.

If you remove the means, the ends cannot transpire. Remove the possibility of a negative balance.

Risk capital consists of investment funds allocated to speculative activity. Risk capital refers to funds used for high-risk, high-reward investments such as junior mining or emerging biotechnology stocks. Such capital can either earn spectacular returns over a period of time, or may dwindle to a fraction of the initial amount invested if several ventures prove unsuccessful.

I said that most of my capital is risk capital by this definition. I do not do hedge trading. My risk is mostly speculative risk.

Hedging involves more pure risk, which is why they are hedging to decrease risk.

Pure Risk: There are only two possibilities; something bad happening or nothing happening. It is unlikely that any measurable benefit will arise from a pure risk. The house will enjoy a year with nothing bad occurring or there will be damage caused by a covered cause of loss (fire, wind, etc.). Predicting the outcomes of a pure risk is accomplished (sometimes) using the law of large numbers, a priori data or empirical data. Pure risk, also known as absolute risk, is insurable.

Speculative Risk: Three possible outcomes exist in speculative risk: something good (gain), something bad (loss) or nothing (staying even). Gambling and investing in the stock market are two examples of speculative risks. Each offers a chance to make money, lose money or walk away even. Again, do not equate gambling and investing on any other level than as both being a speculative risk. Gambling is designed to enrich one party (the house); the odds are always in its favor. Investing is designed to enrich all involved, the house that set up the “game” AND those that chose to place money in the game – all participants with “skin in the game” win or lose together. Speculative risk is not insurable in the traditional insurance market; there are other means to hedge speculative risk such as diversification and derivatives.

 

[darktone]

I agree. Your rc monies certainly could be in another universe if you woke up the morning of October 31, 2011 with a MFG acc, at least for a while.

If we take two traders, both with 10k of capital they fully emotionally and financially prepared to put at risk and lose. Both open the same no neg balance acc with the same broker.
Trader A funds his acc with the full 10k and limits his total notional risk to no more than 10k.
Trader B funds his acc with 1k and trades 10x with a total notional risk of no more than 10k.

Buttfick occurs and affects both traders in exactly the same manner at they are both mysteriously positioned pip per lot per pip in the same instruments. The broker survives and when the quotes hit the screens both accounts have hit zero.

Trader A is out the full 10k and off searching the jobs ads in the local rag to go again, at some point in the future.
Trader B is out the full acc at 1k on the unrealistic no neg bal good graces of the broker and has 9k left to fund an acc of their choice.

sooooooooooooo

 

[hhiusa]

I agree. Your rc monies certainly could be in another universe if you woke up the morning of October 31, 2011 with a MFG acc, at least for a while.

If we take two traders, both with 10k of capital they fully emotionally and financially prepared to put at risk and lose. Both open the same no neg balance acc with the same broker.
Trader A funds his acc with the full 10k and limits his total notional risk to no more than 10k.
Trader B funds his acc with 1k and trades 10x with a total notional risk of no more than 10k.

Buttfick occurs and affects both traders in exactly the same manner at they are both mysteriously positioned pip per lot per pip in the same instruments. The broker survives and when the quotes hit the screens both accounts have hit zero.

Trader A is out the full 10k and off searching the jobs ads in the local rag to go again, at some point in the future.
Trader B is out the full acc at 1k on the unrealistic no neg bal good graces of the broker and has 9k left to fund an acc of their choice.

sooooooooooooo

Soooo, nothing! Trader A is more than 10 times less likely to blow up his account regardless. Trader B will have to trade with much tighter stops. A 10% loss will result in a 100% loss of capital. Trader B will have an infinitessimally lower chance of experiencing a 100%.

1. He should not be trading a single financial instrument at one.
2. He should not be exposing the entire $10,000 at whack, even if he is trading a single financial instrument.
3. If you remove the means, the ends cannot happen. If he does not leverage or trade CFDs, the negative balance protection is moot and not necessary.
4. If, instead, he opens 10 trades with a cost basis of $1,000, there is a 1/1x10^9 chance that all 10 trades will be unprofitable. There is a 50/50 chance a trade will be unprofitable with a single open position. There is a 99.5% probability that at least 4 trades will be profitable.
   
   See hypergeometric probability density function.
   http://www.math.uah.edu/stat/urn/Hypergeometric.html

Trader A is also not likely to be reading the classifieds even if he loses the $10,000 because he should not have invested with money he cannot afford to lose.

Trader B is more likely to blow up his account more times and more frequently due to the tight stops required for his trading style resulting in the same amount of loss.

 

[darktone]

Trader A and trader B trade in exactly the same manner and methodology. Both trade with no stops. Both can and more importantly fully accept the fact that they can they can lose their entire rc wad.