Negative balance protection is a financial safeguard for customers in the European Economic Area that ensures a trading account's balance can never fall below zero. It means you can't lose more money than you've deposited, even with leveraged trading in volatile markets.
When trading with leverage, you control positions larger than your initial deposit, which can amplify both profits and losses. Without negative balance protection, a sudden market downturn could cause losses that exceed your account's funds, leaving you owing money.
Negative balance protection prevents this in two ways:
Automatic position closure: Coinbase automatically closes open positions when an account's value nears zero, preventing further losses.
Balance reset: If a sudden market event like a flash crash causes a negative balance, Coinbase absorbs the loss and resets your account balance to zero. You are not liable for the negative amount.
This protection is mandatory for all Coinbase retail customers under the regulations of the European Securities and Markets Authority (ESMA).