Risk Disclosure: Leveraged Forex and CFD Trading
This page explains the risks that leveraged forex and CFD trading carries, so that readers of this independent editorial resource can judge for themselves whether such trading is suitable for them.
Partner demo accountWhy This Disclosure Exists
This website is an independent editorial resource that reviews a broker for readers in Nigeria. It is not the broker, it is not affiliated with the broker, and it does not provide financial services, trading accounts, deposit facilities or investment advice. Nothing on this site is a recommendation to trade, to open an account or to send money to anyone.
The site takes on an obligation of honesty towards its readers. Because the pages here discuss leveraged products, that obligation includes setting out the risks plainly, before any reader acts on what they have read. This disclosure is part of that duty. It applies to everything published on this site about forex and contracts for difference, whatever the apparent confidence of any review or comparison.
Leveraged forex and CFD trading is not suitable for everyone. A reader who does not fully understand the mechanics described below, or who cannot absorb the losses they describe, should not trade these products at all.
Past Results Say Little
Reviews, historical price charts and reports of previous gains describe what has already happened. They do not foretell what will happen next. Markets can move against a position for reasons that no earlier pattern anticipated, and a strategy that worked for months can fail in a single session.
Past performance figures, whether of a trader, a strategy or a product, are not a reliable guide to future results. Any material on this site that refers to earlier outcomes is presented as history, not as a forecast. Readers should treat all such information as background, and should assume that future results may differ sharply, including for the worse.
Leverage Cuts Both Ways
Leverage lets a trader control a position far larger than the money set aside as margin. It multiplies gains and losses in the same proportion. A small favourable move can produce a large return on margin, and a small adverse move can produce an equally large loss, sometimes within minutes.
Because the position is larger than the deposit behind it, losses are not limited to the amount the trader intended to risk. They can exceed the margin placed on the trade, and in fast or gapping markets they can exceed the entire account balance, leaving a debt owed to the broker. Leverage does not improve the odds of a trade; it only enlarges the consequences of being wrong.
Readers should also remember that leverage magnifies the effect of every cost described below, since those costs are charged on the full size of the position rather than on the margin.
Margin Calls and Closure
When losses reduce the equity in an account towards the margin required to keep positions open, the broker may issue a margin call. A margin call is a demand for more funds. It is not a warning that can be safely ignored, and there is no guarantee that it will be received in time to act on it.
If the equity falls to the broker's closure level, the broker may close open positions automatically, without further notice and at whatever prices prevail at that moment. Automatic closure can crystallise a loss at the worst possible point, and it can happen outside the hours the trader is watching. The exact thresholds and procedures are set by the broker and by the terms of the particular account, and readers should study them before trading rather than after.
Protection Varies by Jurisdiction
Investor protection schemes, compensation arrangements and the rules on client money differ from one jurisdiction and legal entity to another. An account opened with an entity in one country may carry different safeguards from an account opened with an affiliate of the same brand in another. Segregation of client funds, compensation limits and complaint routes are not uniform.
The broker reviewed on this site may operate through more than one entity, and the protections that apply depend on which entity holds the account and where it is established. This site does not provide legal or regulatory advice and cannot confirm what protection applies to any particular reader. Readers should establish these facts directly, through the broker's own documents and, where necessary, independent legal advice, before depositing any money.
Costs and the Losing Majority
Trading costs accumulate quietly. Spreads are charged on every position, and overnight financing is charged on positions held past the daily cut-off, often every day. Commissions, inactivity fees and currency conversion charges may apply as well. These costs are incurred whether or not the trade is profitable, and over time they can consume a substantial portion of an account.
Published figures across the industry consistently show that a large majority of retail accounts trading leveraged forex and CFDs lose money. The proportion varies by broker, product and period, and the broker's own disclosure should be consulted for the relevant figure. Readers should assume, as a working premise, that they belong to the majority until proven otherwise by audited results over a long period.
For all these reasons, trade only with money you can afford to lose entirely, and never with funds needed for rent, food, school fees, medical costs or the repayment of debt. If a loss of the whole amount would change your life, that amount is too large to trade. Questions about this disclosure can be sent through the contact form on this site.
