Risk Disclosure: Leveraged Forex and CFD Trading
Read this before you open a position, because the risks described here are the ones that most often turn a trading plan into a loss.
Set against our partnerUnderstand the running costs that erode your account
Every leveraged forex or CFD position carries costs that apply whether the trade is winning or losing. The spread is the difference between the price you can buy at and the price you can sell at, and it is charged on entry and effectively paid again on exit. On quiet markets the spread may look small, but it widens around news releases and at times of low liquidity, and frequent trading multiplies that cost over a month.
Overnight financing is charged when you hold a leveraged position past the daily cut-off. It reflects the cost of the borrowed funds that make leverage possible, and it can be positive or negative depending on the instrument and the direction of your position. Commissions, where they apply, add a further fixed cost per trade. These charges accumulate quietly: a strategy that looks profitable before costs can be a net loser after them, so calculate the total running cost of a position before you decide its size.
Recognise how leverage multiplies losses as well as gains
Leverage lets you control a position much larger than the cash you commit. That magnifies the effect of every price movement on your equity, in both directions. A small favourable move can produce a gain that looks large relative to your deposit, and a small adverse move can produce a loss of the same proportion. The arithmetic is symmetrical, but the consequences are not: losses reduce the capital you need to keep trading, and once it is gone you cannot recover it by continuing.
Because leverage is expressed as a ratio, it is easy to underestimate. A position ten times your deposit moves ten times as much in cash terms for each percentage point of price change. Traders who focus on the potential gain often overlook that a modest run of losing trades at that size can consume the account.
Know when margin calls and automatic closure apply
When your equity falls below the margin required to keep your positions open, the broker may issue a margin call and require you to add funds. If the market continues against you and equity falls to the broker's closure level, positions may be closed automatically without further notice. Those closures happen at the prevailing market price, which may be worse than the level you would have chosen.
Automatic closure is a protection mechanism, but it does not protect you from losing more than you expected. It can realise losses at the worst moment, and it can close positions you intended to hold through a temporary move. You should know the broker's margin and closure levels before trading, and treat them as part of your risk plan rather than as a safety net.
Account for gaps, slippage and news-driven volatility
Prices do not always move smoothly from one level to the next. Gaps can occur between the close and the next open, or around major announcements, and a stop order placed inside a gap may be filled at the first available price rather than the level you set. This is slippage, and it works against you when the market moves fast.
News releases, central bank decisions and unexpected events can produce volatility that widens spreads and makes execution uncertain. In those conditions, the price you see when you click may not be the price you receive. A strategy that performs well in calm markets can fail badly in these moments, so consider reducing position size or standing aside when volatility is elevated.
Treat past results as a poor guide to the future
Historical price data and past performance describe what has already happened. They do not predict what will happen next, because market conditions, liquidity and participant behaviour change. A strategy that worked in one period may fail in another, and a record of past gains tells you nothing about the risk taken to achieve them.
Regulators publish figures showing that a majority of retail accounts trading leveraged products lose money. The exact share varies by broker and by period, but the direction is consistent: most retail traders end up with a net loss. You should assume you are in that majority unless you have a clear, tested reason to think otherwise, and you should never trade with money you cannot afford to lose. This site is an independent editorial resource and does not provide financial advice; if you need guidance, consult a qualified professional.
