Why Your Investment Account May Show Negative Equity
When you invest in a copy trading strategy, there are situations where your investment account might temporarily display a negative equity value. This occurs due to specific market conditions and the automatic risk management systems in place.
How Negative Equity Occurs
When a strategy you're copying experiences severe market movements, the following sequence may occur:
Stop Out Mechanism: If the strategy's equity falls to 0 or below, all open trades in the strategy are automatically closed (this is called a "stop out").
Market Gap Impact: Sometimes, the market movement causing the stop out is so significant that the closing prices result in a balance below zero, creating a negative equity situation.
Automatic Compensation: When this happens, the system will automatically reset the strategy's equity to 0 through a process called NULL_compensation, which typically occurs within 7 days.
Important Points to Understand
No Financial Liability: FXTRADING.com does not hold investors responsible for negative balances in copy trading investments. Any negative balance will be compensated automatically.
Hedged Positions Exception: If the trader's positions are fully hedged (opposite positions that balance each other), the stop out may not occur despite showing negative equity, as these positions effectively neutralize each other's risk.
Resolution Timeline: After a stop out event that results in negative equity, all orders will be closed, and the copying process will stop. The system will reset your investment balance to 0 within approximately 7 days.
For more comprehensive information about the copy trading process and how investments are managed, we recommend reviewing our detailed investor guides in the Client Portal.