What is NBP in Forex? Table of Contents
- FBS offers 1:3000 and NBP
- What is NBP (Negative Balance Protection)?
- What's the risk of Forex trading?
- Why traders lose and reach "Stop Out"?
- How can I avoid the risk in Forex?
- Common rules to avoid losses in Forex trading
FBS offers 1:3000 and NBP
FBS is an online Forex and CFD broker with the highest leverage in the world.
With FBS, you can trade with up to 1:3000 Forex leverage, which you can not experience with any other brokers.
Although FBS’s 1:3000 can be a great trading tool to increase your trading volume, as it can increase the trading volume by 3000 times, it can also work against you.
High leverage does not simply increase the trading volume to earn more profits, but the amount of loss will also increase accordingly.
To protect traders from such risk, FBS support NBP (Negative Balance Protection).
In this article, we will get into more details about the NBP and the risks involved to Forex trading.
Note that the trading conditions such as the trading cost, maximum leverage and the available financial markets are different depending on the account type you choose with FBS.
Visit the page here to see the list and comparison of FBS’s all Forex trading account types.
Don’t also forget to check out FBS’s bonus promotions which you can participate for free.
What is NBP (Negative Balance Protection)?
NBP works like an insurance fund for traders.
As FBS supports NBP for all live trading accounts, the NBP covers any exceeded losses for traders.
It works like this:
When you trade in a live trading account, your positions could cause a large loss which results to “Stop Out”, a liquidation of all open positions.
The “Stop Out” itself works as a measure to protect traders’ live trading accounts, to prevent from further losses.
Upon “Stop Out”, due to a large volume of positions in your account and high volatility in market prices, your account balance could result to negative, as in the balance is below zero.
That’s where FBS’s NBP comes in.
As FBS supports NBP for all traders, the system will automatically reset the account balance to zero in that case, thus protecting traders from negative balances.
The negative balances will be covered by FBS for traders, so traders can start trading again with fresh start.
What’s the risk of Forex trading?
You think that FX is high risk and that most people lose?
Certainly, on the Internet, you may see episodes where FX has greatly reduced assets.
But that doesn’t mean most people are losing money.
According to a questionnaire conducted by an FX company, about 46% of people answered that their trading was negative, while about 42% of people answered that the their trading was positive.
In addition, about 12% of the remaining people answered that the balance remained unchanged.
In other words, there are some people who lose money in FX, but there are also people who make profits.
Many people think that FX is a high-risk, high-return investment compared to other investments.
In this article, we’ll show you 5 patterns that increase risk, including over-leveraging.
If you want to open an Forex account, or if you want to deal with risk and forex trading, please check them out.
Why traders lose and reach “Stop Out”?
So what exactly causes FX to lose?
Here are 5 common patterns.
1. Trade without knowing the rules
Forex trading will definitely cost you if you start somehow without knowing the rules of trading and how to analyze market prices.
Some beginners may just understand that, you can buy FX when it is cheap and sell it when it is expensive.
Sure, it’s not a mistake, but it’s just one way to trade.
In order not to lose in FX trading, it is necessary to know the mechanism of the whole market, trading rules, chart analysis method, etc.
Because the FX market is a place where investors from all over the world gather and trade, including investment professionals who manage huge amounts of assets.
In order to trade and fight in the same playing field as those professionals, a certain level of knowledge or technology is naturally required.
You could lose money if you buy and sell at appropriate times like gambling, so be sure to have basic knowledge of FX such as chart analysis and trading methods.
2. Leverage is too high
If you have a position size too big for your money, you could lose all the money with a single loss.
Since FX deposits are leveraged on the deposited margin, you can hold a position of a larger amount than you originally need.
Leverage is a mechanism to improve financial efficiency, and if people who are good at trading use it, they can increase their funds quickly.
On the contrary, it can be said that the funds can be reduced quickly when used by people who do not have knowledge or experience like the above example.
To get started, you should trade in small lots until your method is established.
Alternatively, you can decide the amount of loss that can be tolerated in a single transaction in advance, and then set the price range and lot number.
3. Urge to hold positions at all times
Forex beginners often fall into this psychological state.
It is a psychological state in which you cannot rest without having a position at all times.
A position is an unsettled state in FX trading.
For example, it is when you have a “buying position”, and a take profit (or stop loss) sell order has not been executed after a new entry.
This is also one of the causes of loss in FX.
Specifically, the following three factors contribute to loss.
- Analysis and entry points become rough.
- It tends to hold a position to the limit of funds, and a slight retrogression easily leads to stop out level.
- The influence of spread becomes too large.
It is one of the most important reasons to lose money because the purpose is to have a position, and analysis and entry points tend to be rough.
In addition, if you increase the number of positions just because you can afford margin, in the worst case, the stop out will be activated and your account’s positions will be forcibly settled, which may result in a large loss.
In addition, as the number of positions increases, the time and effort required to manage each position may increase and the funds may be pressured, resulting in missing entry opportunities.
And don’t forget that the more you hold a position, the higher the transaction cost of spreads.
Even a single spread can be a non-negligible cost when stacked.
4. Poor Stop Loss Order management
If you can’t cut the loss properly, you risk losing a lot.
Stop loss is to settle a position with an unrealized loss.
Maintaining a position with an unrealized loss is called “stop loss”.
If you can’t cut the loss and settle the position, and if the market price goes in the opposite direction, the stop out rule will eventually be activated and you may be in a situation where you need to deposit more to continue trading.
If you continue to hold the unrealized loss position without being able to cut the loss, some of the margin will be bound, and you will not be able to use that margin for your next entry opportunity, which may result in loss of opportunity.
Forex is not profitable in every trade, even for the most skilled professionals.
There is always a trade that causes a loss, and it is basic to accept it.
Instead of taking on the mentality of “I do not want to lose any money,” let’s have a consciousness of earning positive results for the whole trade by repeating profit and loss cuts.
5. The unrealized profit grows
If a firm investment strategy is not established, the psychology of wanting to quickly establish a positive balance for a position will work, and payment will be made immediately with a low profit.
You might think, “A little unrealized profit is a plus, so it’s no problem” but if you get only a small amount of profit when you are positive, the damage when you are negative is relatively large.
It will be large (this is a large profit and loss), and eventually it will be a total loss.
On the contrary, the loss small profit is a theory to make it positive in FX, so let’s be aware that the stop out is early and the profit is not in a hurry.
How can I avoid the risk in Forex?
So far, we have introduced 5 patterns that FX beginners tend to lose.
From here, we will explain specific methods to avoid these risks.
1. Learn basic market analysis methods
If you have your own market analysis method, you can avoid the many risks of Forex trading.
Here, we introduce two typical market price analysis methods.
Technical analysis performed on the chart
Technical analysis is a market analysis method that predicts future price movements from past price movements, using candlesticks displayed on charts and indicators calculated from price movements.
If you open the chart, you can decide the trading policy with a computer or smartphone, so it is widely used.
There are some representatives of technical analyzes such has “moving average line” and “RSI”.
The moving average line is a technical analysis in which the average of the closing prices for a certain period is connected by a line on the chart.
There are various ways to use the moving average line, but the basic view is to judge that an upward trend is an uptrend and a downward trend is a downtrend.
The shape of the moving average line changes greatly depending on the period of measuring.
If it is short, it will react sensitively to the latest trend, and if it is long, it will show the trend of a long period.
RSI is a technical analysis that displays the line that connects the ratio of the rising day and the falling day by aggregating the price change from the set period.
You will be able to visually see the heat (trend) of the market.
For example, if the RSI continues to exceed 80%, it is possible to predict that “because it has been bought all the time, selling may soon become dominant.”
Both FBS MT4 and MT5 trading platforms has already built-in technical analysis tools for free.
Fundamentals analysis that predicts price movements from the economy and politics
Fundamentals analysis is an analysis method that predicts the effects of news such as economic indicators, monetary policy, and remarks of each country on exchange rates.
It takes time to learn because it requires knowledge of the world economy, but it is essential for mid- to long-term market analysis.
There are many types of economic indicators, but first you should watch the employment statistics of the United States, which is often released on the first Friday of every month.
It is a very high-profile economic indicator and often has a sharp price change immediately after its announcement.
To follow the important news and events of the world, you can refer to FBS’s economic calendar in the Official Website.
2. Start with low leverage
Beginners should start trading with low leverage.
If you trade with high leverage from the beginning, lots are likely to grow and you lose a lot of money with one loss.
Leverage calculations are complicated, so it’s a good idea to start with the smallest unit you can trade in that Forex account.
On the other hand, FBS’s 1:3000 high leverage can be a great tool for traders to increase the trading volume.
In fact, FBS’s 1:3000 leverage is the highest level in the market, and no other brokers offer this high level of leverage.
3. Make full use of various ordering methods
The risk of FX trading can also be mitigated by choosing the ordering method.
There are many ways to order in the FX market, including:
- Market order
- Limit order
- Stop order
- OCO order
- IFD order
- IFO order
It may seem difficult to memorize when arranged in this way, but let’s first divide it into “market orders” to buy and sell immediately and “pending orders” to buy and sell when the specified price is reached.
Of the above, only market orders are real-time orders, all others are pending orders.
Real-time market orders
Market orders are orders that must be bought and sold at that time.
Depending on the FX account, it is also called a streaming order.
This is an order used when you want to enter immediately or want to settle a position, and it is often used for scalping, which allows you to trade in a very short period of time according to market movements.
It is often used as an urgent settlement to clear the position you have and when the market moves more than you expected.
All pending orders are limit and stop or a combination of both
There are many types of pending orders, but each is composed of limit and stop orders, so it is important to fully understand the meaning of these two.
- Limit order
- A Limit order reserves to buy or sell at a more favorable price (a price that is convenient for traders). If you have a new position, then you can buy cheaper or sell higher than now in the future.
- Stop order
- Stop order reserves to buy or sell at a more unfavorable price (a price that is not convenient for traders). If you have a new position, then you can buy higher or sell cheaper than now in the future.
- OCO order
- It is mainly used for settlement when you have a position. You can place orders for take profit (limit) and stop loss (stop) at the same time. Once either of them is enabled, the other will be cancelled.
- IFD order
- Once the new pending order is activated, the settlement pending order is then activated. You can specify the price for both new and settlement by selecting limit or stop price.
- IFO order
- With a combination of IFD and OCO, you can book a new order (IFD) and book (OCO) subsequent settlements.
FBS MT4 and MT5 trading platform already feature all of the above order types, and you can use them all without installing any software or tools.
4. Set a stop loss on all orders
Many individual investors tend to focus only on the amount of profit and not pay much attention to the amount of loss.
Of course, it is important to be aware of “how much profit can be made”, but you should be more aware of the risk that “the trade will result in maximum loss”.
This is because if you lose the funds in your account, you will not be able to continue trading anymore and you will be out.
Once you leave the market, you can’t expect any further technological improvement, and you won’t be able to get back immediately even if you have a big opportunity.
Specifically, figure out “how much will you lose if the trade doesn’t go as you expected?” and try to trade the amount you can afford to lose.
Understanding loss in FX is not really that difficult.
If a stop loss is set to about a few percent of the total funds, even if you lose consecutively for a while, money will remain in your account and you can continue FX.
For example, if the fund is 1000 USD, if you make a stop out of 10 pips in 100,000 currency transactions, you will lose 100 USD if you lose, which is 10% of the total assets.
With such a small loss, you will have less emotional shock if you lose and you will be able to trade positively again.
Of course, with this setting, you can not aim for a big profit, but it is not so easy to make a profit from the beginning of FX trading.
First, practice your skills with low risk, and be confident that if you continue this method, money will surely increase, then increase the number of trades or increase the investment funds.
Common rules to avoid losses in Forex trading
In addition to the specific methods introduced above, FX risks can be further suppressed by establishing rules for trading.
To decide in advance the actions that should not be performed when trading, below are 3 main trading rules.
1. Do not hold positions for more than days or weeks
Limiting your position holding time to one day or one week can help you develop trading strategies.
There is also an advantage that it can be avoided in the early morning or when there is a sharp market fluctuation at the beginning of the week.
You can avoid the mistake that the stop loss is delayed because the settlement is forcibly made over time.
2. Immediately set the take profit and stop loss
By using the OCO order that has already been explained, the exit (settlement) of open positions can be fixed.
For example, if you have a buy position, there are only two types of results, whether you go up from there and take profit, or you go down and stop loss.
By booking both prices, you’ll get the expected results unless the market changes abruptly.
Also, if you place an OCO order, it will be settled automatically at the target price even if you are not looking at the chart, so it is suitable for those who do not have time to monitor the price charts all the time.
3. Quickly get into the habit of OCO
In technical analysis, you buy and sell only when the buy/sell sign appears.
By using only the technical analysis on the chart as the basis for trading, there are advantages that unnecessary trades are reduced.
For example, create a trading rule in which the appearance does not change depending on the interpretation, such as “when the moving average line with a long period crosses the moving average line with a short period,” at a glance the condition is satisfied.
By doing so, you won’t trading because of your temporally mood.
If you follow the trading rules and continue trading, you can expect to brush up the rules.
As introduced above, by establishing trading rules and making them routine, a stable trading style and trading method are established.
In addition, by continuously verifying the trading rules, it is better to do this, and you can brush up the method for better performance, such as not entering at such timing.
To that end, it is important to “do many trades with the same rules” and “record the trade results in detail”.
Please check FBS official website or contact the customer support with regard to the latest information and more accurate details.
FBS official website is here.
Please click "Introduction of FBS", if you want to know the details and the company information of FBS.
IronFX
Comment by Diletta
March 26, 2024
Awesome bonuses, good leverage. A few hiccups, but support rocks!