Understand the Risks Before You Trade Leveraged Forex and CFDs
Leveraged forex and CFD trading can lose you money quickly, and this page explains the main risks you should weigh before opening any position.
How the sponsor is regulatedRecognise How Leverage Magnifies Gains and Losses
You may be reading this because you are considering a leveraged forex or CFD account and want to know what you are getting into. Leverage lets you control a position larger than the money you put up, which sounds convenient until the market moves against you. Every price change is applied to the full size of the position, not just to your deposit, so a small move can produce a large gain or a large loss.
A one percent move against a position leveraged twenty times can wipe out roughly twenty percent of the margin you committed. Leverage does not improve your odds of being right; it only changes how much a given move costs you. Losses can exceed your initial deposit if the position gaps or the market moves sharply, and you may owe money beyond what you paid in.
Treat leverage as a risk multiplier rather than a tool for making returns. If you cannot explain how a two percent adverse move would affect your account balance, the position size is probably too large for you.
Expect Margin Calls and Automatic Closure
When your open positions move against you, the equity in your account falls toward the margin required to keep them open. Once it drops below the required level, the broker may issue a margin call asking you to add funds. If the market keeps moving, the broker can close positions automatically, often at the worst possible moment.
Automatic closure protects the broker's exposure, not yours. It can lock in a loss you might have preferred to ride out, and in fast markets the closing price can be worse than the level you expected. Gap moves over weekends or around major announcements can skip past your stop entirely.
Account for Spreads, Overnight Financing and Running Costs
Leveraged products are not free to hold. You pay a spread on entry and exit, and on many instruments you also pay overnight financing for positions held past the daily cut-off. These costs accrue whether or not the trade is working in your favour.
Financing charges are usually linked to interest rates and can add up quickly on larger or longer-held positions. Spreads tend to widen during volatile periods and around news, so your effective entry and exit prices may differ from what you see on a quiet chart. Other charges may apply depending on the instrument and the account type, and they vary over time.
Before trading, work out what a position costs to open and to hold for a week. Costs that look small per day can turn a modest gain into a loss.
Accept That Most Retail Accounts Lose Money
Regulators in several markets require firms to publish the share of retail accounts that lose money on these products, and in many cases that figure is between seventy and eighty percent. The exact number differs by firm, entity and period, but the pattern is consistent: the majority of retail traders end up worse off.
This is not a reason to feel singled out. It reflects the combination of leverage, costs and the difficulty of predicting short-term price moves. A minority do profit, but past results of any trader, strategy or account say little about what will happen next, because markets change and a run of good outcomes can reflect luck as much as skill.
Plan on the assumption that you could be among the majority who lose. Only risk money you can afford to lose entirely.
Check Which Protections Apply to You
Protections differ by jurisdiction and by the legal entity that holds your account, even within the same brand. Rules on leverage caps, negative balance protection, segregated client funds, complaint procedures and compensation schemes vary from one country to another, and an offshore entity may offer fewer safeguards than an onshore one.
Before depositing, find out which entity would hold your account, which regulator oversees it, and whether any compensation scheme would cover you if the firm failed. If you cannot establish those facts from the documents you are given, treat that as a warning.
This site is an independent editorial resource that reviews a broker for readers in South Africa. It is not the broker, is not affiliated with it, and does not provide financial services, accounts, deposits or advice. If you need to reach this site, use the contact form on this site.
