Risk Disclosure: Leveraged Forex and CFD Trading
A plain statement of the risks that apply when you trade forex and contracts for difference with borrowed exposure, prepared for readers of this independent editorial resource.
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A trader opens a position of one lakh rupees on a currency pair using ten thousand rupees of their own money, with the rest supplied as leverage. If the market moves one percent in their favour, the gain is one thousand rupees against their ten thousand, a ten percent return on the money actually committed. If the market moves one percent against them, the loss is likewise one thousand rupees, a ten percent loss on the same capital. Nothing in the mechanism distinguishes a good decision from a bad one; leverage simply scales the outcome, and it scales losses as readily as gains.
Because the borrowed portion does not belong to the trader, a small adverse move can consume a large share of the deposit. A position can move against the trader by an amount that would be modest for someone holding the full value outright, yet wipe out most or all of the account when only a fraction was posted. This is the central fact of leveraged trading, and every other risk described here compounds it.
It is worth stating plainly that leverage does not raise the probability of a correct call. It changes only the size of the consequence.
Margin Calls and Automatic Closure
When losses reduce the account's equity below the level the firm requires to keep positions open, the position enters a margin call. The trader is expected to add funds or reduce exposure. If the equity falls further, to the point where it no longer covers the required margin, the firm may close positions automatically, without further notice and without waiting for the trader's consent.
Automatic closure can happen at the worst possible moment, and it can happen while the trader is asleep or otherwise unable to act. In fast markets the closure price may be far from the level the trader would have chosen. A trader should never assume that a position will be left open indefinitely because a margin call has not yet been acted upon; the firm's terms, not the trader's intentions, govern when closure occurs.
Traders should read the specific margin and close-out rules that apply to their account before trading, because they differ between firms and between account types.
Jurisdiction and Entity Differences
The protections available to a trader depend on which legal entity holds the account and where that entity is established. Investor compensation schemes, dispute resolution arrangements, segregation requirements and the treatment of client money are not uniform across countries. An account opened with an entity in one jurisdiction may carry protections that an account with an affiliated entity elsewhere does not.
This site is an independent editorial resource. It is not a broker, it is not affiliated with any broker, and it does not offer accounts, accept deposits, or provide financial services or advice. Nothing here should be read as a statement that any firm is regulated, licensed or endorsed. Readers should verify for themselves which entity would hold their funds and what protection, if any, attaches to that entity.
Capital You Can Afford to Lose
Only money that can be lost without affecting essential spending, savings, or obligations should ever be committed to leveraged products. This is not a cautious suggestion but a practical consequence of the risks above: losses can arrive quickly, can exceed what was anticipated, and cannot be recovered by wishing them away.
Borrowed money, emergency funds, and funds earmarked for rent, education or medical costs have no place in a leveraged account. A trader who would be materially harmed by the loss of the deposit is trading at a level of exposure that is unsuitable for them, regardless of how confident they feel about a particular view.
The Share of Losing Retail Accounts
Regulators in several jurisdictions require firms to publish the proportion of retail client accounts that lose money when trading contracts for difference. Those published figures, where they exist, have consistently shown that a majority of retail accounts lose money over the measured period. The exact percentage varies by firm, product and period, and readers should look for the figure disclosed by the specific firm they are considering.
The consistent finding across jurisdictions is that losing is the common outcome for retail participants, not the exception. A prospective trader should treat this as the base rate against which their own expectations are measured, and should be sceptical of any presentation that omits it.
Running Costs and Market Gaps
Costs accumulate continuously. The spread between bid and ask is paid on entry and exit. Overnight financing is charged on leveraged positions held past the daily cut-off, and it accrues for as long as the position remains open. Commissions, currency conversion and inactivity fees may apply depending on the account. These costs are incurred whether or not the trade is profitable, and over many trades they can materially erode returns.
Prices can also move discontinuously. Weekends, scheduled economic releases, central bank decisions and unexpected news can produce gaps, where the market opens at a level well beyond the last traded price. Orders intended to limit losses may be filled at a worse level than requested, a phenomenon known as slippage. In such conditions, the realised loss can exceed the amount the trader had planned to risk, and stop orders offer no guarantee of the price at which they execute.
Readers with questions about this disclosure may use the contact form on this site.
