Alright, so I’m pretty sure that you’re all aware of CFD also known as a contract for difference which is primarily a contract that pays the differences in the settlement price between both open and closing trades. However, while this industry might seem very attractive it is quite dynamic and very risky which is why CFD trading is banned in several countries. I researched the four basic risks of CFD trading for you guys and obtained this information from the EzChargeback website which is a platform that is perfect for obtaining all CFD trading information.
This website is excellent and it explains everything in simpler words. I’ve personally learned a lot from just reading and searching for information on this spectacular website. So do check it out for all the details related to CFD trading and its risks. Without further ado let’s dive straight into the risky waters of CFD trading.
CFDs as a leveraged product
CFDs are considered to be leveraged products and this leverage gives you immense exposure to the markets by simply depositing a percentage of the full value of the trade you wish to place. This might be an advantage if the market moves in your favour however if it doesn’t you can easily beat significant losses and there is inadequate risk management.
This primarily means that a single move in the market will have a huge impact on your capital and it could go either way.
The market may move in your favour and it may move against you. Overall it is quite a volatile business – and guess what?! It has been indicated by the EzChargeback experts that the CFD industry has an immaculate number of scams – not in a good way! Considering that there are all types of risks involved in this business, it is best to ensure that you enter the CFD market fully protected and with your gear up.
The risk of account closeout
There are several reasons that can cause the balance of your account to change rapidly and market volatility and other sudden rapid changes in prices can have a great impact on the balance. There are several risks if you don’t have sufficient balance in your accounts. Your account can automatically be closed by the platform if the account’s balance is below the close-out level. Therefore you’ll have to keep a keen eye on your account and deposit funds regularly to avoid account closeout.
Significant holding costs
This solely depends on the positions you hold and the amount of time you hold these positions for. These holding costs are applicable on a daily basis if you have positions on certain instruments. In several cases, if you’re holding on to positions for a long time there’s a significant risk attached to it. The risk is that the sum of the holding cost will exceed your account balance or your profits and you’d suffer a loss. Thereby it is crucial to have sufficient funds to cover all the holding costs. Therefore it is advised to always seek professional help since these matters are very tricky.
