Risk Management Guide
Understanding and managing risk is crucial when dealing with complex speculative financial products. Learn about the key concepts and strategies to protect your capital.
Critical Risk Warning
CFDs and similar speculative products are complex instruments and come with a high risk of losing money rapidly due to leverage. You could lose more than your initial investment. Consider whether you understand how these products work and whether you can afford to take the high risk of losing your money.
Key Risk Concepts
Leverage Risk
Leverage amplifies both potential profits and losses. With high leverage, even small market movements can result in significant gains or losses relative to your account balance.
Example: With 10:1 leverage, a 1% market movement against you could result in a 10% loss of your margin.
Margin Requirements
Margin is the deposit required to open a leveraged position. You must maintain sufficient margin to keep positions open, or face automatic closure at a loss.
- Initial margin: Required to open a position
- Maintenance margin: Minimum level to keep positions open
- Margin calls: Requests for additional funds
Market Volatility
Financial markets can be highly volatile, with prices changing rapidly due to economic events, news, or market sentiment. High volatility increases the risk of significant losses.
Risk Mitigation Strategies
Position Sizing
Never risk more than you can afford to lose. A common rule is to risk no more than 1-2% of your account on any single trade.
Stop-Loss Orders
Set predetermined exit points to limit losses. Stop-loss orders can help prevent emotional decision-making during volatile periods.
Diversification
Don't put all your capital in one position or market. Spread risk across different instruments, though remember that diversification doesn't eliminate risk entirely.
Understanding Risk Scenarios
High Risk Scenario
Situation: Using maximum leverage (100:1) on a volatile currency pair
Position: €10,000 position with €100 margin
Market Move: 1% adverse movement
Result: €100 loss (100% of margin)
Lower Risk Scenario
Situation: Using moderate leverage (10:1) with stop-loss
Position: €1,000 position with €100 margin
Market Move: 1% adverse movement, stop-loss triggers
Result: €10 loss (10% of margin)
These examples are for illustration only and do not account for spreads, fees, or slippage.
Psychological Risk Factors
Emotional Trading
Fear and greed can lead to poor decision-making. Stick to your predetermined risk management rules.
Overtrading
Taking too many positions or increasing position sizes after losses can quickly deplete your account.
Overconfidence
A few successful trades can lead to overconfidence and excessive risk-taking.
Important Regulatory Information
This information is provided for educational purposes only and does not constitute investment advice. Complex speculative financial products carry a high risk of loss and may not be suitable for all investors.
Our services are only available to eligible clients in jurisdictions where we hold appropriate regulatory certification. You must be 18+ and have sufficient knowledge and experience to understand these risks.
Before engaging with any financial products, ensure you fully understand the risks involved and seek independent advice if necessary.