Loss-cut and zero-cut explained: when positions are closed and what happens if a balance goes below zero
How loss-cut (forced closing) and zero-cut (negative balance treatment) work in forex, why levels differ by broker, and how bonus credit covers losses.
Published ・ MyBrokerBonus Editorial
When floating losses grow, the broker may close your positions by force before you do. That is the loss-cut. A related rule, zero-cut, decides what happens when a sudden move pushes the loss past your balance. Both are set out in each broker’s terms, and they differ by broker. This guide explains how they work and where to look in the terms.
All numbers here are examples to show the method. Always check the real levels and conditions in the broker’s terms and account information.
The loss-cut is forced closing
The loss-cut is a rule by which the broker closes positions automatically when the losses have grown and the room in the account is small. Its job is to stop losses from growing further.
Whether positions are closed depends on whether the margin level has fallen below a level the broker has set. That level differs by broker and by account type, so this guide gives no number. Before you open an account, look in the terms near the words “loss-cut” or “stop-out”.
- The level is highPositions stay open. You can open more.
- The level falls toward the broker's warning lineSome brokers send a margin call (a warning). Not every broker does.
- The level reaches the loss-cut levelPositions are closed by force, usually the largest loss first. The level is set by each broker.
- The price jumps past the levelThe balance can end below zero. See the next figure.
Some brokers send a warning (a margin call) before the loss-cut. Others do not. Do not rely on a warning. Watching the margin level yourself and cutting the size while there is room is safer.
Which positions are closed, whether all of them go at once, and whether the largest loss goes first also depend on the broker.
Zero-cut covers a balance that goes below zero
When the price moves fast and jumps past the loss-cut level, positions can be closed at a loss bigger than the balance, leaving the account below zero. Zero-cut is the rule for what happens to that negative part.
- A broker with zero-cut: the broker absorbs the negative part and returns the balance to zero. You are not billed for more than you deposited.
- A broker without it: the negative part stays on the account, and the broker may ask you to pay it.
The broker offers zero-cut
The negative part is cancelled by the broker and the balance returns to zero.
The broker does not
The negative part stays on the account, and the broker may ask you to pay it.
Whether zero-cut applies, and on what conditions, is written in each broker's terms. The numbers are made up.
Even where zero-cut is offered, conditions can apply, such as exclusions by account type or by trading method. Read the conditions in the terms.
Caution
Zero-cut does not reduce losses. It settles what happens to the part beyond the balance. With zero-cut you can still lose all the money you deposited.
Bonus credit and the order of losses
In an account that holds bonus credit, which money a loss is taken from is also set in the broker’s terms.
Credit is used first
The credit is used up first, then your own funds.
Own funds are used first
Your own funds are used first and the credit stays.
Each bar's full length is the amount before the loss. Which way applies is written in the broker's terms. The numbers are made up.
Some brokers use the credit first, others use your own funds first. If the credit runs out first, you may keep trading, but the amount you can withdraw afterwards may be worked out differently. How credit appears in the platform is in how bonus credit looks in MT4 and MT5. For withdrawal conditions, see how to read bonus withdrawal conditions.
What to check in the terms before you open an account
- The margin level at which the loss-cut works, and what the broker calls it.
- Whether a warning (margin call) is sent.
- Whether zero-cut is offered, and if so its conditions and exclusions.
- How credit is used in the loss and margin calculations.
Decide the size of your trades once you know the numbers. Our position size calculator can help.
What to read next
How to work out the margin and the margin level is in leverage and margin explained. The bonuses running now are collected in the bonus list.
Risks to keep in mind
Trading with leverage can lose money quickly. A loss-cut or zero-cut does not make the loss disappear, and a bonus does not change that. This guide explains how things work and does not promise any profit. Trade only with money you can afford to lose.
