Risk Disclosure for Leveraged Forex and CFD Trading
An independent editorial note on the risks that come with leveraged forex and CFD trading, provided for readers of thnkbrokerin.com.
Open an account at our partnerStart with a concrete example to see how leverage cuts both ways
Suppose you open a position on a currency pair with 100,000 units of notional value and your broker requires a 1% margin, so you deposit 1,000 from your account. If the price moves 1% in your favour, you gain 1,000, which doubles your deposited margin. If the price moves 1% against you, you lose 1,000, which wipes out your entire margin. A move of a fraction of a percent in the wrong direction can therefore erase a large part of your account. That is leverage in its simplest form: it multiplies the effect of every price change on your equity, in both directions, without warning and without sympathy.
This example is not a worst-case scenario; it is ordinary. Major currency pairs can move 1% or more in a single session around central bank decisions, inflation releases or political shocks. When you trade on margin, the size of your position relative to your account balance determines how quickly a normal market swing becomes a threat to your remaining funds. The same mechanism that makes small deposits feel powerful also makes small adverse moves feel catastrophic. Understanding this arithmetic before you trade is more useful than any forecast.
Recognise how gaps, slippage and news-driven volatility change the price you get
Markets do not always trade continuously. Over weekends, during holidays, or around major announcements, prices can jump from one level to another without passing through the levels in between. This is a gap. If you hold a position through a gap, your stop-loss order may be filled at the next available price, which could be far worse than the level you specified. The same applies to slippage: even in fast-moving continuous markets, the price at which your order executes can differ from the price you saw on screen, especially when liquidity is thin or volatility is high.
News-driven volatility deserves particular attention. Economic data releases, central bank statements, election results and geopolitical events can cause spreads to widen sharply and prices to whipsaw in seconds. During such moments, the distance between the bid and the ask can multiply, and the depth of the market can shrink. Orders that would be filled instantly in calm conditions may be rejected, partially filled, or filled at a markedly different price. No risk management system can eliminate these effects; they are structural features of leveraged trading, and they can turn a planned loss into a larger one.
Remember that past results tell you little about what comes next
A strategy that produced gains last month, or even last year, may fail tomorrow. Historical price patterns are just that: historical. They were generated by a particular combination of economic conditions, market sentiment and liquidity that will not repeat in exactly the same way. Backtesting a strategy on past data can be useful for understanding how it might behave, but it cannot account for future shocks, changes in market structure, or the simple fact that many apparent patterns are the result of chance.
Equally, a run of winning trades does not mean the next trade is more likely to win. Each trade is exposed to the same uncertainties as the one before it. Traders who confuse a favourable past with a reliable future often increase their position sizes at exactly the wrong moment. The only honest statement about future returns in leveraged forex and CFD trading is that they are uncertain, and that losses are a normal part of the activity.
Face the share of retail accounts that lose money
Regulators in several jurisdictions require brokers to publish the percentage of retail client accounts that lose money when trading contracts for difference. Those figures are not a secret, and they are not flattering. Across many brokers and time periods, the majority of retail accounts lose money. The exact number varies by broker, by product and by the period measured, but the pattern is consistent: leveraged trading is a difficult activity in which most individual participants end up with less than they started.
You should treat that statistic as a baseline, not as a challenge. It reflects the combined effect of costs, volatility, leverage and human behaviour. It does not mean every individual will lose, but it does mean that the default outcome for a retail trader is a loss. Any decision to trade should be made with that baseline in mind, and with money you can afford to lose entirely.
Add up the running costs that quietly erode your account
Every trade carries costs, and in leveraged products those costs compound quickly. The spread is the difference between the price at which you can buy and the price at which you can sell; it is a cost you pay on entry and exit, and it widens when liquidity is poor. Commission may be charged separately on some instruments. Overnight financing, sometimes called a swap, is applied when you hold a leveraged position past the daily cut-off; it reflects the cost of borrowing to maintain the position and can be positive or negative depending on the instrument and the direction of your trade.
These costs are not always obvious on a single trade, but they accumulate. A strategy that looks profitable before costs can become a losing one after spreads, commissions and financing are included. Holding positions for longer periods increases the financing burden. Frequent trading increases the spread burden. Before you trade, calculate what the total cost of a round trip would be, and consider how many trades it would take for those costs to outweigh any plausible gain.
Know how margin calls and automatic closure work, and how protection differs by jurisdiction
When the equity in your account falls below a required level, your broker may issue a margin call, asking you to deposit more funds or reduce your positions. If the equity continues to fall and reaches the broker's stop-out level, the broker will close positions automatically, without further notice, to protect itself against the risk of your account going negative. Automatic closure can happen at the worst possible moment, locking in losses, and you may have no opportunity to decide which positions are closed. The specific thresholds and procedures are set by the broker and by the rules of the jurisdiction in which your account is held.
That last point matters. Investor protection schemes, compensation limits and dispute-resolution arrangements differ from one jurisdiction to another and from one legal entity to another within the same group. An account opened with an entity in one country may have different safeguards from an account opened with an affiliate in another. You should identify the specific legal entity that holds your account and read its client agreement and risk disclosures before depositing funds. This site is an independent editorial resource; it is not the broker, is not affiliated with the broker, and does not provide financial services, accounts, deposits or advice. If you need to contact this site, use the contact form on this site.
