Risks of CFD trading

As a new trader, it is important to understand the risks associated with CFD trading before you start trading with a live account. 

You can lose more than your deposit

CFDs are a leveraged product, meaning you can gain exposure to the markets by depositing just a percentage of the full value of the trade you wish to place. This means that while you could make a potential profit if the market moves in your favour, you could just as easily lose more than your deposit if the trade moves against you. 

Risk of account close-out

Market volatility and rapid changes in price, which may arise outside normal business hours if you are trading international markets, can cause the balance of your account to change quickly. If you do not have sufficient funds in your account to cover these situations, there is a risk that your positions will be automatically closed by the platform if the balance of your account falls below the close-out level.

You should continuously monitor your account and deposit additional funds or close your positions (or a portion of your positions) so that the funds in your account cover the total margin requirement at all times.

Market volatility and gapping

Financial markets may fluctuate rapidly and the prices of our products will reflect this. Gapping is a risk that arises as a result of market volatility. Gapping occurs when the prices of our products suddenly shift from one level to another, without passing through the level in between. There may not always be an opportunity for you to place an order or for the platform to execute an order between the two price levels. One of the effects of this may be that stop-loss orders are executed at unfavourable prices, either higher or lower than you may have anticipated, depending on the direction of your trade. You are able to limit the risk and impact of market volatility by applying an order boundary.

Holding costs

Depending on the positions you hold, and how long you hold them for, you may incur holding costs. These holding costs are applied to your account on a daily basis if you hold positions on certain products overnight past 5pm New York time. In some cases, particularly if you hold positions for a long time, the sum of these holding costs may exceed the amount of any profits, or they could significantly increase losses. It is important that you have sufficient funds in your account to cover your holding costs.

If the position moves against you, or you allow holding costs to add up, you could lose more than you have deposited and you may be required to make further payments.

CFD trading carries a high level of risk to your capital compared to other kinds of investments, and prices could move rapidly against you. It's possible to lose more than your initial deposit and you may be required to make further payments. Therefore, CFD trading may not be appropriate for everyone and we recommend that you understand the risks, and seek independent professional advice if necessary, before deciding whether to start CFD trading.