How to protect your deposit with a broker - useful tips

When establishing a broker account, we can come across phrases like "Leveraged instruments carry a high risk" and/ or "You can lose more than you have invested". This is mainly due to regulatory requirements, which stemmed from concern for the citizen (or rather infamous loss / profit statistics), but… The question arises: What can we do to protect our deposit? In order to answer them, we first need to realize where this threat comes from. First of all from leverage.

The current way of presenting leveraged investments may be somewhat misleading, as if by depositing certain funds into the broker's account, we trade with this specific deposit. In practice, our capital serves only to secure the results of our transactions and is not involved in trading. When investing in leveraged CFD / FX contracts, we are actually trading thousands, tens of thousands, even hundreds of thousands of dollars, euros or other currencies. So securing your deposit is crucial - for both the broker and the trader. In this article, we will introduce several ways to help protect our capital.

Use the lever carefully

In 2018, European brokers were forced to implement new regulations on limiting financial leverage, but even the 1 leverage: 30 can amazingly deplete our deposit. Previously, the "basic" applicable leverage was the 1 value: 100 (currently available outside the EU or for professional and experienced clients), so over 3 times more. With this assumption, a 1 lot contract with a value of 100 000 euros can be opened with collateral only 1% of this amount. How can you protect yourself against the adverse effects of leverage? First of all, it's worth maintaining a higher level of security, or simply open transactions with a smaller volume. By maintaining a smaller volume, even in the event of rapid price movements, losses will be less severe.

Be sure to read: Experienced customer and leverage of 1: 100 - we check the procedure

Protection against negative balances

Many brokerage companies offer so-called protection against negative balances. This is a very good solution, but it is still not the rule, so when opening an account it is worth paying attention to whether a given broker offers such a thing. It is also especially useful if, for example, we want to trade only part of our money and use a high leverage. For example, from 10 000 thousands of trading dollars, we pay only 1000 zlotys, we keep the rest in safe assets (e.g. deposit) and leverage aggressively the amount we pay. 

Regular profit payments

A good way to protect your deposit is to make regular profit withdrawals. Such a strategy also positively affects the trader's psyche. The old rule says that profit is easier and easier to trade. It is also worth noting that rewarding for good actions, in this case disciplined, profitable trading, always raises "morale". It's worth paying out a profit and earning yourself a reward.

Use Stop Loss

It is always worth using Stop Loss. If you don't set up SL it doesn't mean you don't have one. In that case, your stop is stop out level for your account. If you have a really small amount on your account, e.g. 1%, 2% of your total funds, then this level is still acceptable. However, when dealing with large amounts, it is always worth protecting against sudden and violent changes in the price movement. An interesting idea is also to use a percentage stop loss. It can be counted from the initial deposit amount. For example, SL 3%, deposit PLN 10, then the SL value for a single transaction is PLN 000.

What when the deposit increases or decreases?  Then the value can be adjusted in relation to the current account balance. There are also ways to automatically set a stop loss. You can use scripts available on the Internet or create your own. Most of the EAs in MT4 allow, for example, an automatic stop with a defined pip value, a price trailing stop, or break even switching.

Be sure to read: Stop Loss - if and how to move? [market beginnings]

License with a deposit guarantee

Our capital is at risk not only on the market. They are also subject to risk from broker companies. Any bankruptcy or refusal to accept payments has the same consequences as resetting your account. Therefore, it is always worth paying attention to the "reputation" of the company and whether it has the appropriate license to guarantee our funds.

Check it out: 5 features a secure Forex broker

diversification

An old saying goes: "Never put all your eggs in one basket." Looking at the memorable market movements like the famous Swiss bank decision, Brexit, stock market crashes, you have to admit that there is something to this saying.

It's always worth:

• Do not allocate all funds to one type of investment,
• Do not keep all available capital on your broker account. If necessary, you can always transfer funds from the bank.
• If you invest large amounts, it is worth considering whether to spread them over 2-3 brokers, with deposit guarantees.