When you invest in CFDs, you take on a high degree of risk. Here are the most significant risks associated with CFD trading:
You could lose more money than you originally invested.
CFDs are leveraged products, which means you can trade a much more prominent position than you have invested. It can be great when the market moves in your favour, but it can also work against you if the market moves against your position.
For example, if you invest £1,000 in a CFD and the market moves against you by 5%, you will have lost £50. However, if the market moves by 10 %, you will have lost £100.
You could experience a margin call.
A margin call is when your broker asks you to deposit more money into your account to cover the losses you have incurred. If you do not have the money to cover the margin call, your broker can sell your assets to cover the losses. It can happen if you have not lost all of your money – your broker may sell your assets if the market moves against your position by a certain amount.
You could be forced to close your trade prematurely.
If the market moves against your position, you may be forced to close your trade prematurely. It means that you will not get to see how the trade would have played out in the long run, and you could lose money as a result.
You could experience slippage.
Slippage is when the price of an asset moves against you while your order is being filled. It can cause you to lose money on trade even if it initially looks like it is going in your favour.
You could get stuck in a bad trade.
If you enter a trade and the market moves against you, you may be unable to get out of that trade without incurring a loss. It can lead to significant losses if the market continues to move against you.
You could experience price volatility.
The price of an asset can move up and down very quickly, leading to losses if you are not prepared for it.
You could experience liquidity problems.
Liquidity problems occur when insufficient demand for a particular asset to maintain its price. It can cause the asset price to drop suddenly, leading to losses.
You could experience extreme price movements.
The price of an asset can move very quickly in one direction or the other, leading to significant losses if you are not prepared for it.
You could experience a market crash.
It is when the market falls by a significant amount in a short period. It leads to significant losses for investors.
You could experience a flash crash.
A flash crash is a market crash that occurs very quickly and without warning. A flash crash can lead to significant losses for investors.
You could get caught in a bubble.
A bubble is when the price of an asset rises to unsustainable levels. When the bubble bursts, investors can lose a lot of money.
You could be investing in a scam.
Many scams are being perpetrated in the CFD market, and it is essential to do your research before you invest in any products.
You could be investing in a Ponzi scheme.
A Ponzi scheme is a scam where the promoter pays investors with money taken from new investors. It can lead to significant losses for investors.
You could be investing in a pyramid scheme.
A pyramid scheme is a scam in which participants earn money by recruiting new participants into the scheme.
You could be investing in a fraudulent company.
Many fraudulent companies are operating in the CFD market, and it is essential to do your research before you invest in any products.
These are just a few of the risks associated with CFD trading. Make sure you do your research (here) before investing any money in this market.