As with all financial trading instruments, there are risks a client must consider before trading CFDs.
The high degree of leverage associated with these types of investments means that the degree of risk compared to other financial products is higher. Trading with leverage may work against you resulting in substantial loss as well as for you resulting in substantial gain. Even when market conditions are relatively calm, leverage can create large gains or losses very quickly. This may cause your broker to take action to avoid a negative account balance. In either case, the Company may close any or all open positions in the account to remedy the situation.
Since the transactional cost of trading CFDs is tied to the bid-ask spread, it is important to understand what the normal bid-ask spread is for any pair, and what that spread means in the actual cost per trade. The bid-ask spread can also fluctuate throughout the trading day and is often a function of the liquidity of the position you trade. You may also see slightly wider bid-ask spreads in quiet market situations, especially on lightly traded forex pairs or during high volatility on the markets. As in any trading market, CFDs are driven by short- and long-term supply and demand, which can cause prices to move rapidly and often erratically. Traders need to employ sound risk-management techniques on each and every trade. Using stop-loss orders can help to limit the maximum loss the client will have in any given position. However, it should be noted that in some circumstances even the use of stop-loss orders cannot prevent the client from incurring a bigger loss.
Interest Rate Risk
Traditionally, if country’s interest rates rise, its currency will normally strengthen because investors will shift their assets to that country to gain higher returns. Conversely, if a country’s interest rates fall, its currency will normally weaken as investors shift money away looking for higher returns. Consequently, if the interest rate difference of one currency versus another increases or decreases dramatically, the exchange rate and thus forex prices may also dramatically change.
News and Economic Risk
In our global economy, news from anywhere in the world can affect the financial markets in many ways. These effects can manifest as rapid price movements or changes in trend direction or long-term outlook. It is prudent when trading either long term or short term to keep an eye on news and other factors like government reports that can affect profitability. Governments gather economic activity statistics and release reports almost every day. The challenge is figuring out which reports may have an effect on CFDs/forex prices.
Brokers face operational risk as they transact their daily business activities. Some of these risks arise from internal procedures, human resources, organizational structure, technology (trading platform) etc. Although they do not impose a risk to the market system as a whole, they could prevent you from monitoring positions or placing orders.
This risk occurs when an investment firm is unable to pay out investor’s account balance when a withdrawal request is submitted. As the Company is an STP broker connected to one or multiple liquidity providers there is also the default risk of a liquidity provider that shall be considered.
Forex trading is based on currency pairs. When trading forex one speculates whether the price of one currency will rise or fall against the other currency.
The currency pair indicates how many of the counter currency is needed to buy the base currency.
If the EUR/USD trades at 1.08 it means that one euro costs 1.08 US dollars, i.e. 1.08 US dollars is needed to buy one euro.
The client may open a long or short position based on his/her individual market expectation.
a) Long position
If the client expects that an underlying asset’s price is going to rise, the client might open a buy position (also known as “going long”). By a long position the client opens a trade which speculates on the rising price of financial instrument.
Forex trading: If the client thinks that EURO is likely to strengthen against the US dollar, he/she may decide to buy the EUR/USD pair (please always bear in mind that by trading CFDs the client is not buying/selling the actual currency).
b) Short position
If the client expects that an underlying asset’s price is going to fall, the client might open a sell position (also known as “going short”). By a short position the client opens a trade which speculates on the falling price of financial instrument.
Forex trading: If the client thinks that EURO is likely to fall against the US dollar, he/she may decide to sell the EUR/USD pair (please always bear in mind that by trading CFDs the client is not buying/selling the actual currency)
Leverage is the ratio between the transaction size and the margin requirement/initial margin that is required to open a position. Trading using leverage means you can magnify the returns on your investment but it is important to remember that losses will be magnified as well and it is possible to lose all your initial deposit.
If the client deposited USD 1000 and assuming his/her leverage level is 1:50 than the highest amount that the client can trade with is USD 50.000. 1:50 ratio means that in order to open a position, the initial margin is fifty (50) times less than the transactions size.
Trading with leverage carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you.
Margin/margin requirement is the amount of funds required in client’s trading account in order to open and maintain an open trade. The funds used as margin to open and maintain a trade are effectively frozen while client’s position is open, and returned to client once the trade has been closed (taking into consideration that the trade will not cause a bigger loss than the margin required).
The CFD (“Contract for Difference”) is a popular form of derivative trading. A client does not take physical ownership of the underlying asset, but CFD trading enables him/her to speculate on the rising or falling prices of financial instruments such as shares, indices, commodities and currency pairs.
With CFD trading, the client does not buy or sell the underlying asset (e.g. a physical share). The client buys or sells a number of units for a particular financial instrument depending on whether the client thinks prices will move up or down.
The Company offers CFDs on a wide range of global markets and our CFD financial instruments include:
- currency pairs,
- commodities and
- stock indicessuch as the S&P 500, DAX, UK 100 etc.
For every point the price of the financial instrument moves in client’s direction, the client gains multiples of the number of CFD units bought or sold. However, for every point the price moves against the client’s direction, the client will make a loss.
One of the key advantages of CFD trading is that the client can trade using ‘leverage’. This means the client can trade without having to put down the full value of a position. As client’s money is not tied up in one transaction, the client can use it for other investments.
To buy the equivalent of 1,000 IT company share CFDs with the Company, the client may only need to deposit 10% of the total position value in comparison to depositing the whole amount of the position value if he/she was buying physical shares from a stock broker.
If each share costs 5 USD then you will only need to deposit 500 USD to cover the margin requirement for such position(10% of USD 5,000 = USD 500) plus the applicable commission, which in this instance would be USD 20.
Please contact us by phone at +357 25349815.
Account management is not charged in TopTrader.
By Margin call we inform you that the value of coverage of your positions has dropped to a level which requires your attention. You should check your open positions, check what is happening on the market and consider the risk. In the event of a Margin call, we recommend to do one of the following: a) insert resources to your trading account as soon as possible b) close a part or all of your positions.
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TopTrader is a registered brand name of Goldenburg Group Limited, a Cyprus Investment Firm (CIF) supervised and regulated by the Cyprus Securities and Exchange Commission (CySEC) with CIF License 242/14 for the following services:
Main investment services:
– Reception and transmission of orders in relation to one or more financial instruments,
– Execution of Orders on Behalf of Clients
– Safekeeping and administration of financial instruments, including custodianship and related services,
– Foreign exchange services where these are connected to the provision of investment services,
– Investment research and financial analysis or other forms.
For further information, please follow through the list of services and instruments here.
All spreads can be found in the webpage under ‘Trading’ > ‘Instruments’ by choosing the proper instrument group or go directly here where you can choose the proper instrument group i.e. Forex, Commodities, Shares and Indices.