Risk Disclosure for Leveraged Forex and CFD Trading
This page explains the principal risks of leveraged forex and CFD trading for readers of this independent editorial resource.
Try the sponsor's demoScope of This Disclosure
This website is an independent editorial resource that reviews a broker for readers in Uganda. It is not the broker, it is not affiliated with the broker, and it does not provide financial services, accounts, deposits or advice. Because we write about leveraged products, we take on the obligation to set out the risks plainly, so that any reader who goes on to open an account with any firm does so with a clear understanding of what is involved. Nothing on this site is a recommendation to trade, and nothing here should be read as a substitute for your own judgement or for independent professional advice.
Leveraged forex and CFD trading is not suitable for everyone. The products are complex, they move quickly, and the use of leverage means that a small movement in the underlying market can produce a large movement in your account balance, in either direction. The sections below describe the main categories of risk. They are not exhaustive, and they apply whether you trade through the broker we review or through any other firm.
Differing Investor Protection
Protection arrangements for retail traders differ by jurisdiction and by legal entity. The same brand may operate through several entities in different countries, and the entity that holds your account determines which rules apply to you, including whether any compensation scheme covers your losses if the firm fails. A scheme that applies in one country may not extend to clients of an entity registered elsewhere, and the limits of cover, the eligible products and the process for making a claim can all vary.
Before opening an account, establish which entity would hold your money, where that entity is established, and what protection, if any, attaches to your account. Do not assume that cover available to clients in one jurisdiction is available to you in Uganda. Segregation of client money, where it applies, is not the same as insurance, and it does not protect you against losses caused by market movement. This site does not provide legal or regulatory advice, and you should satisfy yourself on these points directly with the firm before depositing any funds.
Loss Rates and Market Execution
A majority of retail accounts that trade leveraged forex and CFDs lose money. Firms regulated in several major jurisdictions are required to publish the share of retail client accounts that lost money over a stated period, and that figure is commonly between seventy and eighty per cent. A published loss rate is not a forecast about you, but it is the clearest available evidence of how difficult these products are for retail traders over time.
Execution risk compounds the problem. Prices can gap over weekends, around economic releases and during unexpected news, so the price at which an order is filled may be materially worse than the price you specified. Slippage is common in fast markets, stop-loss orders are not guaranteed and may be filled at a level beyond the one you set, and liquidity can thin to the point where positions cannot be closed at or near the quoted price. News-driven volatility can move an account from profit to loss within seconds, and no risk management tool removes that possibility entirely.
Margin Calls and Total Loss
Leverage means that you post a fraction of the notional value of a position as margin. If the market moves against you, your equity falls relative to your margin requirement. When equity drops below the level set by the firm, you may receive a margin call requiring additional funds. If you do not meet it, or if the market moves too quickly for any notice to be practical, the firm may close some or all of your positions automatically, without consulting you, and at whatever price is available at the time. Automatic closure is a protection for the firm as much as for you, and it can crystallise a loss you might otherwise have preferred to manage yourself.
In fast or gapping markets, automatic closure may not prevent your balance from going negative. Whether you are liable for a deficit beyond your deposits depends on the terms of the entity holding your account and on the rules that apply to it, so read those terms before you trade. Trade only with money you can afford to lose entirely, and never with funds set aside for rent, school fees, medical costs or debt repayment. Borrowing to trade, or depositing money you cannot replace, turns a market loss into a financial problem that reaches beyond the account. If you wish to raise a concern about anything on this site, use the contact form on this site.
