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Risk of Trading
What is FOREX & CFDIntroduction to TradingRisk of TradingUnderstanding the Financial marketsHow to open a trading accountRisk Management

Risk of Trading

FOREX & CFD trading carries a high level of risk compared to other kinds of investments, and prices could move rapidly. Not only may the security deposit be lost, but you are also required to pay more funds. Therefore, FOREX & CFD trading may not suitable for all investors.

We suggest all our customers to understand the risks involved and seek professional advice before making a decision to trade FOREX and CFDs.

Leverage Risk

In order to carry out FOREX & CFD trading, you need to deposit a certain percentage margin according to the value of the position. For example, if you are buying a stock CFD valued at US$1,000 then the margin requirement will be 10%. Which means you will only have to deposit US$100 for margin. However, the risk exposure will be the same as the value of the stock that you have purchased, which is US$1,000. This means that the market fluctuations will have a greater impact on your capital than buying stocks of the same value.

Losses could exceed your deposit

Same example as above mentioned, of you are buying a CFD stock valued at US$1,000 and the margin is 10%, all you have to pay is US$100 margin. However, if the position varies by 10% and is moving against you. In this case you will be losing US$100 pay double the margin. You may have losses your margin and will have to deposit more to

Long-term position cost

You may have to pay extra cost depending on your positions and time held. For instance, if you are still holding a specific product after 5pm of New York Time (GMT-4), you will have to pay for the overnight interest on a daily basis. For some cases, if you hold a position for a particularly long time, the total cost may exceed the profit of the position and increase the loss.

It is important that you have sufficient funds in your account to cover the cost of holding positions.

If the position is moving against you or you have accumulated too much overnight interest, then it is possible to lead to floating loss that exceed your margin. In this case you will have to deposit more margin in order to maintain your open position.

Risk of Stop Out

You have to ensure that you have sufficient funds on your account to maintain the required level of margin. If the account balance has dropped below the least margin requirement level, some or all of your open positions will be forced closing (Stop Out). It is important for you to always monitor your account, deposit extra funds, close part or all of the positions in order to maintain the account balance to meet the margin requirements.

Risk of market volatility

Product prize could move rapidly due to the financial market volatility. In rare cases gaps may occur. It is a notable risk of the liquidity in the underlying market.