Leverage and negative balance: risks and responsibilities

[Guest Thomas]

Dear,

I'd like to better understand what can happen in an extreme case scenario relying on the use of leverage, e.g. with CFDs.

In theory and with proper money/risk management, this should not happen, but if a leveraged position gives rise to a significant loss:

- IG will perform a call margin if the margin level is just above a given threshold

- If the margin is not sufficient, IG will close open positions to free up margin. What are the rules behind, are the last opened positions closed?

- If the margin is not sufficient and the account balance becomes negative, what happens? Different situations might lead to such a rare situation (unlikely especially in the case of a conservative risk and money management from the trader/user): a bad trade/money management, a lack of liquidity/counter party preventing the client to close a loosing position (similarly, the spread is expected to be high), an exceptional market event (black swan, e.g. flash crash, unexpected strong change of monetary policy,...), a price gap at market opening, etc... for each situation, what are the responsibilities between IG and the client regarding the risks and negative balance? Could there be a debt to be paid by the client to IG, given that the latter is also responsible for risk management and to provide sufficient liquidity? Is IG supposed/responsible to do everything that is needed to avoid such situations to occur? Could a client see his/her negative balance be set to zero by IG and afterwards continue his/her operations with new funds?

Finally, are these scenarios and responsibilities described in the contract between IG and clients?

Looking forward better understanding these aspects;

Thanks and regards,

Thomas L