Risk Exposure
Risk Exposure

Potential Risks of FOREX and CFD

As compared to other types of investments, FOREX and CFD imply huge risk because prices change very quickly. FOREX and CFD trading not only will cause you lose your deposit, but you will also be required to pay more money. Therefore, FOREX and CFD trading may not be suitable for everyone.

We recommend that all clients understand all the related risks and if necessary, please seek for independent financial professional advice before deciding whether to trade FOREX or CFD.

Leverage Risk

In order to conduct a FOREX and CFD trading, you need to deposit a margin according to a certain proportion to the total value of the trade position. If you buy a stock CFD worth $1,000 and the applicable margin requirement is 10%, then you only need to pay a margin of $100. However, the exposure you face is the same as the value of the stock you have purchased at face value for $1,000. This means that market fluctuations have a greater impact on your capital than buying stock of the same value.

Your Loss may Exceed the Deposit

Using the same example as above, if you buy a stock CFD worth $1,000 and the margin requirement is 10%, then you only need to use a $100 margin. If the position changes by 10% and go against you, you will lose $100. The margin you need to pay doubles. You may not only lose your margin, but also need to deposit additional margin to maintain your open trade position.

Long-term position cost

Based on the positon you hold and the holding period, you also need to pay extra for the position you hold. If you hold a particular product after 5:00p.m. New York time, you will have to pay overnight interest on a daily basis. In some cases, if you hold a position for an exceptionally long period of time, the sum of these holding cost may exceed the profits of the position, or they will significantly increase the loss of the position.

It is important that your account should have sufficient funds to cover the holding costs of the open position.

If the position changes to your disadvantage, or if you accumulated too much overnight interest, it may cause your floating loss to exceed your margin, which may require additional deposits to maintain your open position.

Force Close Position Risk

You must ensure that there is sufficient funds in your account to cover the margin requirement that arise at any time. Otherwise, if the account balance is below the margin requirement level, some or all of your open positions you will be liquidated (as described in the platform). You should regularly monitor your account, deposit additional funds or close all or part of your open positions to ensure your account funds can meet the total margin requirement.

Trading in the international market, market fluctuations and rapid price changes outside normal business hours will lead to rapid changes in your account balance. In this case, if your account does not have sufficient funds and the balance falls below the margin requirement, the platform will automatically liquidate.

The information summary at the top of the platform will shows your account information including the percentage of margin requirements.

Market High Volatility Risk

When the financial market experiencing high volatility fluctuation, our product prices will reflect accordingly. When the products prices suddenly change from one to another pricing level, there may be gaps in rare cases. This price gap is the risk of liquidity in the underlying market.