UK 50% Margin Close-Out Rule and Negative Balance Protection

The UK margin close-out rule says that when the money in your CFD or spread betting account falls to less than 50% of the margin needed to keep your positions open, the firm must close one or more of them as soon as market conditions allow. It is calculated per account. Alongside it, negative balance protection means that as a retail client you can never lose more than the funds in that account. Both rules come from the FCA’s COBS 22.5 and have applied since 1 August 2019 to CFDs, spread bets and rolling spot forex.

How the 50% rule works

Three numbers sit behind the rule. Equity is your cash balance plus or minus the running profit or loss on open trades. Margin is the deposit the firm holds against those trades, set by the FCA minimums (3.33% on major pairs, 5% on minors and gold). The margin level is equity divided by margin, shown as a percentage on most platforms.

At a margin level of 100% your equity exactly covers the margin, and you cannot open new trades. Most firms send a warning around there. Once the margin level drops below 50%, the FCA rule in COBS 22.5.13R requires the firm to close positions. The rule does not tell firms which position to close first; many start with the one showing the largest loss, and some close everything. Your client agreement or the firm’s help pages should say which method it uses. If you believe a firm closed the wrong position or acted at the wrong level, raise it with the firm first; our guide to Financial Ombudsman CFD complaints covers the next step.

A firm is allowed to be stricter than 50%. Some UK brokers close out at a higher level, and some let you choose your own, but none can let a retail account run below 50% without acting. Offshore firms set their own stop-out levels, and some go as low as 20% or even 0%, which is one reason losses there can be deeper and faster. (IC’s account pages list a 50% stop-out, so check each firm’s figure rather than assuming.)

A worked example in pounds

Take a £1,500 account in sterling. You buy 0.4 lots of GBP/USD at 1.3400. The notional value is £40,000, so at 30:1 the margin is £40,000 ÷ 30, or about £1,333. Each pip is worth $4, which is roughly £2.99 at that price.

So a fall of roughly 280 pips would see the firm close the trade, leaving you with about £667 of your £1,500. That is the rule doing its job. Without it, the position could keep bleeding until the account hit zero. Our margin calculator works out the same numbers for any pair and size.

Two details change the maths in real life. The pip value in pounds shifts slightly as the exchange rate moves, and spreads widen at quiet times, which can push the margin level down faster than the mid-price suggests. Treat the trigger as approximate, and never plan to rely on it as a stop.

Gaps and weekend risk

The close-out only works if there is a price to close at. When the market jumps, the next available price can be far beyond the level where the rule should have fired. That happens most often at the Sunday evening reopen (UK time), around central bank decisions, and after political shocks. Stops are filled at the next available price too, unless you pay for a guaranteed stop.

Sterling traders have seen this. On 26 September 2022, after the mini-Budget, GBP/USD fell to a record low near 1.035 in thin Asian trading on the Monday. Further back, on 15 January 2015 the Swiss National Bank removed its cap on the franc and EUR/CHF moved so fast that many stops were filled hundreds of pips away. Several brokers took heavy losses on clients whose accounts went negative, and Alpari UK entered administration days later. Those events are a big reason negative balance protection became a rule rather than a marketing feature.

Negative balance protection: what it does and does not do

COBS 22.5.17R limits a retail client’s liability for all CFDs, spread bets and rolling spot FX connected to an account to the funds in that account. If a gap takes your equity below zero, the firm has to write off the deficit. You do not receive a bill, and the firm cannot chase you through the courts for it.

• Your balance is not protected. You can still lose every pound in the account.
• It works per account. The cap is the cash and unrealised profit in the trading account that made the loss. FCA guidance says money held in that account for other purposes is disregarded, and an ISA at the same firm is not trading money.
• Money still counts once it is in the account. A deposit made to rescue a losing trade becomes part of the funds at risk.
• Retail only. Professional clients get it only if the firm offers it in its terms, and offshore firms may not offer it at all.

Why offshore and professional accounts differ

Both rules are part of COBS 22.5, which applies to retail clients of UK-authorised firms. If you become an elective professional client, the firm’s own margin policy replaces the 50% rule and negative balance protection stops being a legal right. With an unauthorised offshore broker, none of the FCA rules apply, and the firm’s terms, written under foreign law, decide what happens.

Higher leverage makes the difference sharper. At 500:1 the margin on one lot of cable is about £200, so the close-out point is tiny relative to the position, and a normal London session move can take the account to zero. If a gap then pushes it below zero, whether you owe the difference depends on a contract you may never have read.

Practical sizing and stop habits

The best way to deal with the close-out rule is never to meet it. That comes down to position size, stops and how much free margin you keep. These are the habits we see in traders who last:

1. Risk a small, fixed share per trade. Many traders cap risk at 1% to 2% of the account. On £1,500 that is £15 to £30. Our position size calculator turns that into lots from your stop distance.
2. Place a stop on every trade at the level where your idea is wrong, not where the firm would close you out. See our guide to stop-loss and take-profit orders.
3. Keep margin use low. A margin level of several hundred per cent leaves room for ordinary swings. Trade up to a 100% margin level and you have none.
4. Cut size before weekends and big events, such as Bank of England decisions or UK CPI mornings, when gaps are more likely. Volatile crosses need the same care; our GBP/JPY trading guide shows how far that pair can move in a session.
5. Consider guaranteed stops where the firm offers them. They cost a premium if triggered, but they cap the loss even through a gap.
6. Do not top up a losing trade to avoid a close-out. It raises the funds at risk and rarely changes the outcome.

For more on sizing, our risk management guide goes further, and our article on UK leverage limits explains the margin percentages that feed into all of these numbers. Our UK beginner case studies show what happened to traders who met the close-out the hard way.

Frequently asked

Related reading

• UK Forex Leverage Limits Explained
• Professional Client Status in the UK
• IC Markets Leverage for UK Traders
• Using an Offshore Forex Broker as a UK Resident
• Financial Ombudsman CFD Complaints
• Position size calculator