CFD Broker with negative balance protection & Margin Call

An interesting facet in trading with shares, commodities, or currencies is the so-called CFD trading. Here, it is not the products themselves that are bought, but derivatives in which a financial lever is used. Thus, even with the smallest price changes, sometimes considerable profits can be achieved in a short time. An important differentiation criterion between the various providers is the so-called obligation to make additional contributions.

We’ve tested different providers and eToro was clearly the best CFD broker with no margin call.

In the following table, we have also listed a number of other recommended brokers that allow private investors to trade CFDs without any margin requirements.

*: 80.5% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

What is the margin requirement?

Unlike traditional stock trading, Contracts for Differences, as it is called in detail, only derivatives and not the actual assets are purchased. The brokers provide the contracts with a certain financial leverage. In fact, with a specific amount of money invested in a CFD, a much larger amount of shares or other underlying assets are moved in the markets. The necessary capital, the financial leverage, is provided by the broker. On this basis, traders have the opportunity to profit from even minimal price changes. However, just as profits are multiplied according to the leverage used, significantly higher losses also threaten if the price of the underlying instrument does not move in the desired direction. For each position taken by the customer, the broker therefore requires a security deposit, also known as a margin. This is used to cover possible losses if the position does not develop as expected. If the negative price changes are greater than expected, this margin is not sufficient and a so-called obligation to make additional margin payments arises. In concrete terms, this means that the trader is requested to make additional capital contributions. This means, however, that the loss of a transaction can even exceed the actual investment. In the case of strong price fluctuations, it can even be significant, as the so-called franc shock made clear some time ago.

So how can one trade without the obligation to make additional contributions?

There is a decisive difference between online brokers for CFDs with and without a margin call: Online brokers with a margin call always demand the corresponding amount. With CFD brokers without margin requirements, however, traders have the choice of whether or not capital should be added. If the trader decides against it, the position is automatically closed in the corresponding case. Also this variant is not completely free of disadvantages. This is because the trader’s commitment is irretrievably lost when the position is liquidated, even if the price subsequently develops in his favour again. However, it is completely excluded that losses are incurred that exceed the actual stake and the margin. The price level at which a position is actually liquidated depends primarily on the selected leverage or the associated margin requirement.

Is there fraud in trades without margin requirement?

Many traders are quick to suspect fraud if their position is automatically liquidated at a certain price level, especially if the price subsequently recovers. However, it is safe to assume that the CFD broker without margin requirements will not benefit directly from this as he is only executing the transaction. On the contrary: With the automatic resolution, the broker reduces his own risk, as he does not receive the losses from the trader. In fact, the already mentioned franc shock has brought some CFD brokers to the brink of insolvency. The decisive factor for the trader is above all the concrete price level at which the obligation to make additional contributions or the automatic liquidation of the positions takes effect. In addition, the mechanisms of a CFD broker without obligation to make additional contributions are the same as those of a CFD broker with obligation to make additional contributions.

Are margined and non margined brokers better?

The question of whether CFD brokers with or without margin requirements are better can only be answered in the light of the experience that the individual trader has. Especially beginners are recommended to choose a CFD broker without margin requirements. Only in this way can it be safely excluded that incalculable losses occur, which could possibly even represent a risk threatening the trader’s existence. The change to a CFD Broker with additional margin requirements should therefore only be made when really substantial experience in this area is available and the trader can correctly assess the associated risk.

Conclusion: No fraud to fear with brokers without obligation to make additional margin

Basically it is a small, at first glance, but important distinction whether it is a CFD Broker with or without the obligation to make additional contributions. With representatives of the latter group, traders have the security that positions are automatically closed when a certain price level is reached, so that losses can never occur that go beyond the actual investment. This price level is transparent and clearly defined in accordance with the margin set, so that no fraud can occur. Furthermore, if it is ensured that the CFD Broker has an EU license, it can be fully assumed that everything is in order.

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