A loss that's larger than the account:the balance sits below nought, by that amount.
An account balance below zero, which can arise when a market gaps through the stop out level faster than positions can be closed.
Whether a client is liable for a negative balance depends on the broker’s terms and the applicable rules.
In plain words
A negative balance is an account that has fallen below zero, so that more has been lost than was deposited. It can happen with leveraged positions when the price jumps so far and so fast that positions are closed at a much worse price than the level at which the broker would normally have closed them.
See it move
Reached: Reopen
Why it matters
It is the extreme outcome of leverage, usually linked to a gap: a jump in price with no trading in between, for example over a weekend or on unexpected news. Whether the client must repay the shortfall depends on the broker’s terms and on the rules that apply to the account.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
An account holds 2,000 US dollars and is long one standard lot of a pair quoted in dollars; the market closes at 1.1000 and reopens at 1.0750.
- 1Gap1.1000 − 1.0750 = 0.0250, or 250 pips
- 2Loss250 × 10 = 2,500 US dollars
- 3Account2,000 − 2,500 = −500 US dollars
No price was available between the two levels, so the position could only be closed after the gap, leaving the account 500 US dollars below zero.
A common mistake
A stop-loss order does not rule this out. When triggered, a stop becomes an order to close at the next available price, and after a gap that price can be far beyond the stop.
Check yourself
Educational information, not investment advice or a recommendation to trade.