There are several types of CFD trading risks let’s go over a few of them to understand what they are and how they work.
1. Counterparty risks:
These type of risks involve a counterparty which is mainly the company that is providing the asset in the financial transaction. Whenever a trader is buying or selling a CFD the only asset that is being traded is the CFD contract which is issued by the CFD broker/ provider. Thereby, this exposes the trader to other counter parties of the CFD provider which are mainly other customers the broker is working with.
The main risk is that the counter-party fails to fulfill the financial obligations. If the CFD provider fails to fulfill the obligations then the underlying asset is not relevant. Whenever a person decides to trade in this industry it is pivotal to conduct thorough research on the brokers credibility as this industry is highly unregulated.
2. Market risks:
These risks are mainly associated with the dynamic environment of the CFD industry which is mainly the unexpected information, changes in the market conditions, and government policies that result in the value of an underlying asset changing rapidly. Thereby, these small changes have major impacts on the returns and the trader will have to close the position if their margin calls are not met.
3. Client Money risk:
In CFD trading, several countries have client money protection laws that are present to protect the investor from any harmful practices of the CFD provider. According to these laws, any money that is transferred to the CFD provider must be segregated from the providers’ money to prevent the provider from hedging their own investments. In addition to this, the law also prevents providers from pooling the clients money into one or more accounts. Thereby, these laws prevent clients and traders from losing all their money from the client money risks.
4. Liquidity risks and gapping:
As it is evident that the CFD industry is very dynamic, market conditions effect financial transactions and hence may increase the overall risk of losses. When the market does not have enough trades being made for the underlying asset, the contract becomes illiquid. The CFD provider can easily close the contract at lower prices or require additional payments.
Another risk is gapping which is the decrease of the price of a CFD due to the dynamic nature of the market however the trader will have to pay the same amount and incur a loss.
Losing Money in CFD trading:
These CFD trading risks are real and they are legit the reason why many people have lost hundreds, thousands and millions of dollars. My friend has been a victim of these CFD market risks. She bought a contract from the CFD provider and due to unforeseen market changes the value of the underlying asset decreased thus causing her a loss of almost 2000 dollars.
She had to sell it since her margins were not being met and thus had to close her position. Thereby, the CFD market is extremely volatile and tricky for all traders unless you have a special trading skill. The market is incredibly dynamic and thus a sudden unexpected market change results in the value of the asset decreasing. This causes the trader to lose money just like my friend did.
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The Global Payback to your rescue:
The Global Payback is one of the few companies that are experienced in all types of CFD risks and they have a website that has all sorts of information regarding CFD risks, how people lose money, scams, and all other relevant CFD material. This website has helped me a lot when I wanted to trade in the CFD industry. Due to this website, I gained enough information to conclude that this industry is far too risky for someone like me who is basically an inexperienced trader and thus this website mainly saved me from losing thousands of dollars as my friend did. Therefore, I advise all new traders to check this website and do adequate research before trading in this dynamic industry.