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I'm a bit confused about the Negative Balance Protection offered by many brokers, specially when they allow leverage, and a lot of leverage (common in brokers with CFDs).

How are they protecting against the losses?

For example, if I buy Apple using 10X leverage, and the gap (open market) at the next day is 15% negative, Who is paying the extra 5% of that loss?

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  • I don't know the answer but I can offer an analogy that may or may not apply. Some insurance companies offer Structured Annuity products that protect you from the first 10% of loss (and sometimes as much as 100%). This protection is achieved via long puts and sometimes via various combinations of put and calls. Jun 20 '20 at 22:41

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