What is Negative Balance Protection in Crypto Trading?
Trading can get exciting.
Sometimes, however, a trader’s available balance can go to negative territory.
What then happens?
This, unfortunately, happens especially when trading using leverage.
A negative balance can print out when all the available balance covers open positions and applicable swap fees.
It can also occur when a combination of trading losses from your open position and the swap fees deplete a trader's available balance.
In this case, exchanges like CryptoAltum will intervene and perform a margin call.
This, in essence, means closing all open positions at spot rates, absorbing the loss, and resetting the account balance to zero as part of the exchange's policy of negative balance protection.
This intervention means the trader, in essence, doesn't lose more than the deposit amount.
Negative balance protection is of great importance, especially when trading cryptocurrencies. Unlike stocks, for instance, this market is fast-paced, gyrating, creating opportunities (and losses).
In that case, even with negative balance protection, it is highly recommended that traders always deploy the proper risk management practices as a cushion against losses.