OANDA negative balance policy is particularly attractive because it will guarantee traders to never be in debt against the broker. Or, will it?
There are a lot of reasons why beginners may seek OANDA. Since OANDA allows deposit as low as $1 and lot sizes as small as 0.00001 lot, it is possible for us to start trading with whatever left from our monthly expenses. OANDA's negative balance policy is particularly attractive because it will guarantee traders to never be in debt against the broker. Or, will it?
There are some important facts regarding OANDA's negative balance policy that you need to know. Here are three summaries to expand your insight:
1. Read the Fine Prints
OANDA United States Legal Documents hide some fine print. Its Risk Warning page is full of common trope such as "foreign exchange transactions carry a high degree of risk" and "trading on a margin basis means that any market movement will have a proportionate effect on your deposited funds". You won't see any notes about the negative balance policy until you explore the extremely fine prints on the footer.
Right below "all rights reserved" annotation, you'll see this paragraph: "Leveraged trading in foreign currency contracts or other off-exchange products on margin carries a high level of risk and may not be suitable for everyone. We advise you to carefully consider whether trading is appropriate for you in light of your personal circumstances. You may lose more than you invest (except for OANDA Europe Ltd retail customers who have negative balance protection)."
With that said, you may get in debt against OANDA if you suffer losses in a higher amount than your capital. That is, unless you specifically sign up through OANDA Europe Limited as opposed to other entities under the OANDA brand.
2. OANDA's Margin Rules May Prevent Negative Balance
After learning about those fine prints, do you feel cheated? No worries. OANDA enforces one of the strictest margin call policies in the industry. Therefore, it is quite difficult for any trader to suffer negative balance apart from exceptional cases such as the SNB Black Thursday 2015.
What does margin call mean? It is a notification from the broker that will be sent when your account fails to comply with margin requirements. OANDA's US entity establishes margin rates and maximum leverage in accordance with US National Futures Association (NFA) requirements. The rule may change from time to time, but it is still stricter than any margin requirement required by a non-US regulatory body.
Furthermore, OANDA's margin call policy is also quite emphatic. As mentioned in its website, OANDA will send daily margin call emails to all accounts that fall below margin requirements at 3:45 pm ET. When an account remains under-margined for 2 consecutive trading days, all open positions will be automatically closed using the current fxTrade rates at the time of closing. If trading is unavailable for certain open positions at this time, they will be automatically closed using the current fxTrade rates when the markets for those instruments re-open.
OANDA will observe margin requirement compliance every 3:45 pm ET. If you managed to fulfill the margin requirement during the day but it falls below the threshold at 3:45 pm, your account will be considered undermargined. With all things considered, OANDA traders are more likely to suffer margin call terror and forced sell rather than negative balance. You may not need to care about OANDA's negative balance policy at all.
3. Inactivity Fees Won't Result in Negative Balance
OANDA charges inactivity fees for accounts with no trading activity for a period of 12 months. It will be applied on the third last weekday of each month until the account is closed, you resume trading on your account, or the balance on your account is zero.
Therefore, OANDA's inactivity fees won't result in negative balance. You can even claim rebates for up to 3 months' worth of inactivity fees when you are starting to trade again. Otherwise, you can just withdraw all of the available funds when you are losing the passion for trading or looking to move your trading plan elsewhere.
Well, those are some important facts that you need to know about OANDA before signing up. Are you still interested to join this world-famous forex broker? Or will you compare their policies to other top forex brokers first? There are a lot of things that one needs to consider before committing to any forex broker. Apart from the negative balance policy, there's also the issue of customer support and trading fees. Look for more OANDA review, make sure you are confident with your choices.