Risk Disclosure: Leveraged Forex and CFD Trading

What does this page cover and what does it not?

This page sets out the main risks that come with leveraged forex and CFD trading. It is written for readers in Kenya who use this site to read reviews and editorial material about brokers. It is general information only. It does not describe any specific account, product or offer, and it does not tell you whether trading is right for you.

This site is an independent editorial resource. It is not a broker. It does not open accounts, accept deposits, hold client money or provide financial services. It is not affiliated with any broker, and nothing on this site is financial, investment, tax or legal advice. If you need advice about your own situation, speak to a qualified professional who is independent of any broker.

How does leverage work in both directions?

Leverage lets you control a position larger than the money you put up. That cuts both ways. A small move in the market can produce a large gain on your deposit, and the same small move in the opposite direction can produce a large loss. The loss is calculated on the full size of the position, not on your deposit.

Because of this, losses can grow quickly and can exceed the amount you initially set aside. Leverage does not change the direction of the market or improve your chances. It only makes the financial result of being right or wrong larger, and it makes the account balance move faster.

Can I lose more than I expect, even on a quiet day?

Prices do not always move in small steps. They can gap, meaning the market jumps from one level to another with little or no trading in between. Slippage can also occur: the price at which your order is filled may be worse than the price you saw when you placed it. News, economic data releases, central bank decisions and sudden market events can cause fast and violent moves.

In these conditions, stop-loss orders may not protect you at the level you chose. They may be filled at a worse price, or not at all during a gap. A position can therefore close at a loss larger than you planned. This is a normal feature of leveraged products, not a fault in any particular platform.

What happens if my account falls below the required margin?

To keep a leveraged position open, you must maintain a minimum amount of equity in your account, known as margin. If losses reduce your equity below the required level, the broker may issue a margin call. This is a warning that you need to add funds or reduce your positions.

If the equity falls further, the broker may automatically close some or all of your positions to limit further loss. Automatic closure can happen quickly, including during fast markets, and it can turn a temporary loss into a realised one. You should not assume you will always have time to react before positions are closed.

Why do past results say little about the future?

Past performance, whether of a trader, a strategy or a product, is not a reliable guide to what will happen next. Markets change. Conditions that produced good results in one period may not exist in another. A record of past gains does not reduce the risk of future losses.

This is also true of the share of retail accounts that lose money. Many brokers are required to publish the percentage of retail client accounts that lose money when trading CFDs. That figure is a historical summary for a particular period and a particular group of clients. It does not predict your outcome, but a high percentage of losing accounts is a reminder that leveraged trading is difficult and that losses are common.

What running costs and protections should I check?

Trading costs add up and reduce your returns. Spreads, the difference between the buy and sell price, are a cost on every trade. Overnight financing charges apply when you hold leveraged positions open past a certain time, and these charges can accumulate over days or weeks. Other costs may include commissions and currency conversion fees. These costs apply whether you profit or lose.

Protection schemes differ by jurisdiction and by the legal entity that holds your account. Rules on client money, negative balance protection, dispute resolution and compensation arrangements can vary widely. Before opening an account, check which entity would hold your funds and what protections apply to it. This site does not provide accounts or advice; if you need to contact us, use the contact form on this site.

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