Many people are understandably worried after hearing that "FX trading can lead to debt." In fact, with domestic FX trading, stop-loss ordersmay not be executed in time during sudden market changes, resulting in losses exceeding the deposited margin (margin calls). According to statistics from the Financial Futures Association of Japan, during the flash crash in January 2019, there were5,758 cases of outstanding receivables (losses exceeding margin) for individuals alone, totaling approximately $3,625,000.
On the other hand,with overseas forex brokers that have implemented a zero-cut system, account balances are reset even if they go negative, so no debt is incurred due to margin calls. However, even with overseas forex, whether you can stay debt-free depends on how you use it.
This article explains how debt can be incurred through FX trading,why the risk of debt is low with overseas FX trading, how to avoid it, and what to do if you do end up in debtthen discusses.
Conclusion | Key Points about Forex and Debt
- The three main reasons for incurring debt in FX trading are:① margin calls in domestic FX (stop-loss orders not being executed in time during sudden price changes), ② continuing to add funds without being able to cut losses, and③
- With overseas forex brokers that offer zero-cut protection, you won't incur debt due to margin calls(XMTrading,FXGT, etc., officially state this). However, you could still lose the funds you deposited.
- If you already have debts that you are having difficulty repaying,don't try to handle it alone. Consult with Legal Aid (0570-078374) or a lawyer as soon as possible. There is a legal solution called debt restructuring.
*This article was created by the MoneyCharger editorial team in accordance with our content creation policy , by individually checking publicly available information from e-Gov Law Search (Articles of the Financial Instruments and Exchange Act, Bankruptcy Act, etc.), the Financial Services Agency , the Consumer Affairs Agency , the Financial Futures Association of Japan , and the Japan Legal Support Center (as of August 2026). This article is for general informational purposes only and does not constitute legal advice. For individual debt and debt restructuring consultations, please consult a lawyer or other professional or public service.
If you are looking for a highly secure overseas forex broker, please also check out our ranking of popular and recommended overseas forex brokers, which is based on actual customer reviews
Furthermore, we recommend that those new to overseas forex trading read this complete guide for overseas forex trading beginners
Why you might incur debt through FX trading: [Explained from the mechanism]
This section provides a detailed explanation of why people incur debt through FX trading
This information applies to both domestic and overseas forex trading, so please refer to it if you are investing in forex.
A margin call occurs because the stop-loss order was not executed in time
A common cause of debt in FX trading isa sudden market change prevents a stop-loss order from being executed in time, resulting in a margin call (additional margin).
In FX trading, a " stop-loss " mechanism is executed, which automatically closes positions when the margin falls below a certain level . In domestic FX trading, a Cabinet Office ordinance effectively mandates that brokers establish and implement a stop-loss system, which functions as a safety mechanism to prevent margin from going into negative territory.
However, the forced stop-loss mechanism is not foolproof. The Financial Futures Association of Japan (FFAJ) has officially warned that during sudden market changes such as flash crashes, "the stop-loss function may not be fully activated, and losses may exceed the deposited margin."
| Examples of sudden market fluctuations | Personal accounts receivable |
|---|---|
| January 2015: Swiss Franc Shock | 1,137 items/approx. $12,187,500 |
| January 2019 Flash Crash | 5,758 items/approx. $3,625,000 |
| March 2021: The Turkish Lira underwent a sudden change | 3,266 items/approx. $8,000,000 |
If a stop-loss order is not executed in time and the account balance goes negative, the trader becomes obligated to pay the differenceas additional margin (margin call). This is a typical way in which "debt" is created in FX trading.
Many overseas forex brokers havea zero-cut systemthat resets any negative balance and prevents margin calls, butwith domestic forex brokers, margin calls may occur during sudden market changes, so caution is advised.
Unable to cut losses, repeatedly adding margin
The second reason for incurring debt through FX tradingthe inability to cut losses and the repeated addition of margin.
In FX trading, if the price moves in a direction different from what you expected, and you continue to hold your position without cutting your losses, your losses will only increase
If you continue to hold a position and your losses grow, you will be forced to deposit additional funds to avoid triggering a stop-loss order
Continuing to invest additional funds can lead to running out of money and resorting to borrowing for living expenses , resulting in debt —this is a typical pattern of trading failure that occurs both domestically and internationally. This is also where the so-called "FX debt trap" begins, where you borrow even more to repay existing debts. Common failure patterns and countermeasures are summarized in our article explaining the causes of failure in overseas FX trading
While the desire to avoid losses is natural, it's crucial to establish clear trading rules before investing
Borrowing money from consumer finance companies or credit card loans to trade
The third reason people incur debt through FX trading isthey borrow money from consumer finance companies or credit card companies to trade.
When you raise investment funds through borrowing, you incur debt that you are obligated to repay at that point, regardless of the outcome of the transaction . If you incur losses, the only source of funds for repayment is your own assets or income
Furthermore, consumer loan and credit card interest rates are typically around 15-18% per year, andunless you consistently generate returns higher than the interest rate through trading, your debt will only grow. Avoid trading with borrowed money before it starts to disrupt your daily life.
To continue investing without straining yourself, it's important to trade with surplus funds and maintain a comfortable level of flexibility
Why is it less likely to incur debt with overseas forex trading?
Overseas forex trading has a lower risk of incurring debt compared to domestic forex trading.
Here, we will explain in detail why the likelihood of incurring debt is low
We have implemented a zero-cut system
Many overseas forex brokers have implemented a zero-cut system, making it less likely to incur debt.
The zero-cut system is a mechanism where, if a stop-loss order is not executed in time and the account balance goes negative,the FX broker covers the negative amount (resetting the balance to zero). This prevents margin calls, so you will not incur losses exceeding your initial deposit, which means you will not be in debt.
In fact, major overseas forex brokers clearly state the following on their official websites:
| Contractor | Summary of the information on the official website |
|---|---|
| XMTrading | "Negative balance reset. You will not incur losses exceeding your deposit amount." |
| FXGT | "Negative balance protection applies to all account types. We employ a zero-cut system, so no margin calls will occur." *This does not apply when depositing funds into accounts with open positions |
On the other hand,zero-cut is not offered in domestic FX trading. This is because Article 39 of the Financial Instruments and Exchange Act prohibits compensation for customer losses (provision or promise of providing financial benefits to cover losses), and itis understood that canceling negative balances would violate this provision. If you are caught in a sudden market change with domestic FX trading, you will be required to pay additional margin.
Therefore,if you want to structurally avoid debt due to margin calls, choosing an overseas forex account with a zero-cut featureis the surest way to go.
Please check the following article for details on how the zero-cut system works and important points to note ↓
The stop-loss level is lower compared to domestic FX
compared to domestic forex tradingthe stop-loss levelis lower.
If the stop-loss level is low, you have more leeway before being forced to close your position even if the market moves against your expectations, allowing you to tenaciously maintain your position
| classification | Guideline for stop-loss level | Typical example |
|---|---|---|
| Overseas FX | Margin maintenance ratios of 0-20% are the norm | Exness 0%／TitanFX 20%／XMTrading 20%／FXGT 20%／AXIORY 20% |
| Domestic FX | A margin maintenance ratio of 50% is common | Depending on the provider and course, the percentage may be 100% or higher |
However, a low stop-loss level also means that losses will only increase before the position is closed. Therefore, it's necessary to set your own stop-loss level and take positions accordingly, rather than relying on stop-loss orders
Reasons for incurring debt through overseas forex trading
While the likelihood of incurring debt through overseas forex trading is low, it is still possible to end up with debt
Here, we will explain in detail the reasons why people incur debt through overseas forex trading
Due to fraudulent trading, the zero-cut system was not executed, resulting in a margin call
In overseas forex trading, the zero-cut system prevents margin calls
However, although rare,if fraudulent transactions occur, the zero-cut system may not be executed, and a margin callmay be incurred.
Typical examples of fraudulent transactions are as follows:
| Examples of prohibited acts | Content |
|---|---|
| Inter-broker arbitrage | Trading that exploits price differences by taking advantage of exchange rate differences or connection delays between brokers (prohibited by most brokers in their terms of service) |
| Hedging across multiple accounts and brokers | This method involves simultaneously holding both "buy" and "sell" positions for the same currency pair in separate accounts and with different brokers, and then exploiting the zero-cut feature to shift the losses of one side onto the broker |
| Abuse targeting only economic indicator releases | The act of repeatedly engaging in extremely high-leverage trading only during economic indicator announcements, assuming a zero-cut policy (some brokers restrict this in their terms and conditions) |
| Fraudulent acquisition of bonuses | The act of intentionally receiving duplicate bonuses by creating multiple accounts |
Engaging in fraudulent trading can result in not only margin calls but also account freezing and refusal of withdrawals
Let's also look at the causes and solutions for withdrawal refusals in overseas forex trading , as well as the causes and solutions for account freezing
To avoid engaging in fraudulent transactions, it's crucial to understand the prohibited activities when trading with overseas forex brokers
I kept engaging in risky high-leverage trading and got hit with a zero-cut multiple times
Overseas forex trading allows you to aim for large profits with a small amount of capital through high leverage trading
Furthermore, the zero-cut system eliminates the risk of your margin going into the negative
Because of this,people mistakenly believe there is no risk of debt, and fall into a vicious cycle of adding more margin when a zero-cut occurs.
While your margin won't go into the negative, understand that your available funds are definitely decreasing
If you're trading with overseas forex brokers, be sure to also check out recommended strategies and tips for high-leverage trading
Additional information: Are there debt collection practices involved in overseas forex trading?
In conclusion,with normal trading with overseas forex brokers that have a zero-cut system, no debt (margin call) that could lead to collection will ever arise. Even if your account balance goes negative, it will be reset by the broker, so in principle, you will not be pressured by the broker to repay the debt.
However, the following two cases are exceptions
- If zero-cut is not applied due to fraudulent trading in violation of the terms and conditions: You may be required to pay the negative balance (margin call) by the broker.
- If you were trading using borrowed funds from consumer finance companies or credit card loans: Your repayment obligations and collection efforts to the lenders will continue regardless of your trading profits or losses.
Rather than thinking "overseas forex trading = scary debt collection,"what's scary is trading with borrowed money. If you follow the rules and trade within the limits of your surplus funds, you basically won't find yourself being hounded for debt collection.
How to avoid debt risk in overseas forex trading
This article explains how to avoid the risk of debt when trading forex overseas
To prevent trading failures from leading to debt, keep the following points in mind
Use surplus funds to trade in forex
To avoid incurring debt through overseas forex trading, only trade with surplus funds
One reason people end up in debt is that they run out of investment funds and end up dipping into their living expenses.
If you use your living expenses, your desire to avoid losses will become stronger, which may impair your ability to make sound judgments when trading
To trade with peace of mind, make sure to only trade with surplus funds
Adjust leverage and lot size
By adjusting leverage and lot size during FX trading , you can reduce the risk of incurring debt.
Increasing leverage and lot size can lead to larger profits, but it also increases the risk of losses
There is a risk of losing all your margin in a single trade, so be sure to check your investment funds and trade within your means
Clearly define profit-taking and stop-loss levels
In FX trading, some traders use stop-loss orders as their limit, but this is not recommended
This is because stop-loss orders may not be executed correctly due to rapid price fluctuations
Don't rely on stop-loss orders; instead, create your own investment plan and determine in advance how much loss you can tolerate before trading
Similarly, when it comes to profit-taking, if you get greedy and hold a position for too long, unexpected price fluctuations can reduce your profits
It's important to set up profit-taking and stop-loss orders in advance when entering a trade, and to strive for trading that isn't swayed by emotions
Check statements from key figures and economic indicators before trading
Statements from key figures and economic indicators have a significant impact on exchange rate fluctuations.
Therefore, it is necessary to check statements from key figures and economic indicators in advance
Trading without checking statements from key figures or economic indicators could result in losses due to unexpected price movements
Furthermore, rapid price movements may prevent stop-loss orders from being executed in time, meaning that delays in cutting losses can lead to significant losses
During times when it is difficult to predict exchange rate movements, it is advisable to refrain from trading
Also, be sure to check the times of day when it's easiest to make money with overseas forex trading
Develop a trading plan that can withstand sudden market fluctuations
By creating a trading plan that can withstand sudden market fluctuations, you can avoid the risk of debt
Exchange rates don't always move as you expect
Therefore, it is necessary to have a plan in place to prepare for unexpected market movements
When planning your trades, be sure to take into account the risk of a sharp market decline
Choose a company that has implemented a zero-cut system
If you use a broker that has implemented a zero-cut system, your margin will never go into the negative, thus minimizing the risk of debt
However, if you don't choose a trustworthy overseas broker, you may encounter issues such as margin calls or withdrawal problems
When choosing an overseas forex broker, keep the following points in mind
Key points to consider when choosing an overseas forex broker
- There are no negative reviews or rumors such as withdrawal refusals.
- They have obtained a financial license
- We thoroughly implement segregated management and trust protection of customer funds
The key points for choosing a highly reliable service provider are explained in detail in the following article ↓
How to deal with debt incurred from overseas forex trading
If you have incurred debt through overseas forex trading,you can improve the situation by taking appropriate action.
Stop the transaction and repay immediately
If you've incurred debt through overseas forex trading, it's best to stop trading immediately and focus on repaying the debt
If you continue trading while burdened with debt in an attempt to "recover your losses," you are likely to lose your ability to make rational decisions, leading to increased losses and a worsening of your situation
First,prioritize paying off your debts.you've paid them all off and secured surplus funds, you can resume your activities.
Consult a lawyer about debt restructuring
If you are unable to repay your debts, you should consult a lawyer about debt restructuring
Debt restructuringis a legal procedure to resolve debt problems through measures such as reducing the amount of debt or granting payment deferrals.
There are mainly three types of debt restructuring, and you can choose the appropriate method by consulting with a lawyer, depending on the amount of debt and your income situation
| Methods of debt restructuring | overview |
|---|---|
| Arbitrary arrangement | A procedure to reduce the monthly repayment burden by directly negotiating with lenders to cut future interest and increase the number of installments, without going through the courts |
| personal play | This procedure involves obtaining court approval for a debt restructuring plan and repaying significantly reduced debts in installments over a period of generally 3 years (maximum 5 years). In some cases, it may be possible to keep one's home |
| Personal bankruptcy | A procedure to have the court acknowledge that repayment is impossible and, in principle, be exempted from (discharged from) all debt repayment obligations |
There are some points to be aware of if you are considering filing for personal bankruptcy due to debt incurred from FX losses.Article 252, Paragraph 1, Item 4of the Bankruptcy Act stipulates that significantly reducing one's assets through "extravagance, gambling, or other speculative activities"grounds for denial of discharge, and speculative FX trading may be deemed to fall under this category.
However, even if you fall under the categoryof "discretionary discharge" under Article 2 of the same law, there are cases where discharge is granted considering circumstances such as the circumstances and the degree of remorse. Do not give up on your own judgment thinking, "It's FX debt, so I can't file for bankruptcy," and be sure to consult with a lawyer.
If you find yourself in a situation where you are having difficulty repaying your debts,don't try to handle it alone; be sure to consult a professional such as a lawyer. The sooner you act, the more options you will have, rather than ignoring debt collection notices.
Use public consultation services such as the Japan Legal Support Center (Houterasu)
If you feel that "going straight to a law firm is too daunting" or "you can't afford legal fees," you can start by seeking advice from public services such as the Legal Support Center of Japan (Houterasu), which was established by the government
| window | Content |
|---|---|
| Legal Support Center of Japan (Houterasu) | A government-established comprehensive information center for legal troubles. Telephone:0570-078374(Weekdays 9:00 AM - 9:00 PM / Saturdays 9:00 AM - 5:00 PM). Free legal consultations are available if you meet certain income and other requirements. |
| Financial Services Agency: "Consultation service for multiple debts" | The Financial Services Agency's official page provides information on free consultation services for multiple debts at prefectural and regional finance bureaus |
| Consumer Hotline (188) | A nationwide hotline (Consumer Affairs Agency) that connects consumers with their nearest consumer affairs center regarding fraudulent investment solicitations and other consumer troubles |
In most cases, there is no charge for seeking advice. If you are having trouble making repayments, the first step towards a solution is to contact the relevant office as soon as possible instead of ignoring collection notices
Frequently Asked Questions about Debt from Overseas Forex Trading
This section provides a detailed explanation of frequently asked questions regarding debt incurred through overseas forex trading
Are there debt collection practices involved with overseas forex trading?
In normal transactions with brokers that have a zero-cut system, margin calls do not occur, and therefore there are no collections。
However, this does not include margin calls in cases where zero-cut is not applied due to fraudulent trading in violation of the terms and conditions, nor does it include debt collection notices from lenders if you were trading with borrowed funds. For more details, please see " Supplement: Are there debt collection efforts in overseas forex trading? "
What happens if I don't pay the margin call in my FX account?
Margin calls incurred in domestic FX tradingdebts that you are obligated to pay.If you leave them unpaid, you may receive reminders from the broker, incur late payment penalties, and potentially face legal proceedings such as lawsuits and asset seizure.
If you are unable to pay in a lump sum, do not ignore the situation. First, contact the lender and discuss installment payment options. If you still cannot see a way to repay the debt, consider consulting with Legal Aid or a lawyer as soon as possible
Can I file for bankruptcy if I incur debt from overseas forex trading?
Whether you can file for bankruptcy due to debts incurred from overseas forex trading depends on whether the debt falls under the grounds for denial of discharge, or whether discretionary discharge is granted even if it does
Article 252, Paragraph 1, Item 4 of the Bankruptcy Actstipulates the following as grounds for denial of discharge:
"Significantly reducing one's assets or incurring excessive debt through extravagance, gambling, or other speculative activities."
While speculative FX trading may be deemed to fall under this category, even if it does, discretionary exemption under Article 2 of the same provision may be granted depending on the circumstances . Do not make a judgment on your own; consult with a lawyer
Why is Zero Cut free?
The negative balance resulting from zero-cutis borne by the overseas forex broker as a cost from their revenue, such as spreads and transaction fees. From the trader's perspective, it's free, but for the broker, it's positioned as a "service (customer protection) to allow traders to trade with high leverage with peace of mind and increase trading volume."
Domestic FX brokers do not offer zero-cut services because it is understood that doing so would violate Article 39 of the Financial Instruments and Exchange Act, which prohibits compensation for losses. For a detailedexplanation of the zero-cut system, please refer to the article explaining.
Is it okay to borrow money to trade in forex?
I do not recommend it. Trading with borrowed money means you will incur debt that you are obligated to repay regardless of the outcome of the trade。
Consumer loans and credit card loans typically have interest rates of around 15-18% per year, and unless you can consistently generate returns higher than the interest rate, your debt will only grow. Always use surplus funds when trading FX. If you want to start with a small amount, it's recommended to try trading without your own capital by utilizing account opening bonuses
summary
This article explained how debt can be incurred through FX trading, why the risk of debt is lower with overseas FX trading, and how to avoid or deal with it
Here's a summary of this article:
- The three main reasons for incurring debt through FX trading are: margin calls in domestic FX (stop-loss orders may not be executed in time during sudden market changes), continuing to add funds without being able to cut losses, and trading with borrowed money
- Using an overseas forex broker that has implemented a zero-cut system will prevent you from incurring debt due to margin calls (however, this may not apply if you engage in fraudulent trading)
- If you incur debt through overseas forex trading, do not force yourself to continue trading. Instead, focus on repaying the debt first, and if repayment proves difficult, consult with legal aid services or a lawyer as soon as possible
If you put too much faith in the zero-cut system offered by overseas forex brokers, you risk treating forex trading like gambling
When trading FX, it's important to clearly define your profit-taking and stop-loss levels and avoid trading based on emotions
Let's face the risk of loss head-on and trade steadily
＼ Start trading with an overseas forex broker that offers zero-cut protection, and get cashback for great savings! ／
FXGTis a broker that officially states zero-cut (protection against negative balances) for all account types. For other brokers that offer zero-cut, please check the list of overseas FX brokers that offer cashback
