Understanding the Risks of Trading Futures and Forex
In the recent years, online trading has seen exponential growth on all financial instruments. As more investors join the Futures and Forex trading community we urge them to understand the risks involved in investing in such financial instruments. Investors should understand how markets work, governing rules, mechanisms and, most importantly, that Futures and Forex trading carries a high level of risk and it may not be suitable for everyone. Investors should carefully consider their financial status, trading objectives and risk appetite, and they should only use funds that, if lost, will not change their lifestyle. In the United States of America these markets are regulated and supervised by the Commodity Futures Trading Commission (CFTC - www.cftc.gov) and by the National Futures Association (NFA - www.nfa.futures.org). NFA publishes several investor guides aiming to provide awareness to those individuals interested in investing in the Futures and Forex markets.
At FastBrokers we care about each and every client, this is why we invite you to read the following useful information.
Leverage in Futures and Forex Trading
In order to buy or sell a particular Futures contract or Forex currency pair, a minimum “good faith” deposit, referred to as Margin, is required to be withheld from your trading account. The concept of margin derives from the effect of leverage (or gearing). The amount of margin deposit is small relative to the value of the product traded, so that transactions are leveraged. Leverage is a double-edged sword that may work for you as well as against you. A relatively small market movement will have a proportionately larger impact on the funds deposited in your trading account. You may sustain a total loss of your funds in your account and of any additional funds deposited to maintain your open position/s off any margin calls. On your Futures account if the market moves against your position, or margin requirements are increased, your position/s may be closed without warning by the order desk, or you may be called upon to deposit substantial, additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. However, on a Forex account positions may be liquidated by the dealer at any time, with or without warning, as soon as you fall below the margin amount originally needed to open the position/s and you may be liable for any resulting deficit. It is your responsibility to make sure sufficient funds are available in your trading account to keep position/s open.
Leverage and Risk Management
In Futures, the margin to buy or sell a contract and hold it from one session through another is commonly referred to as Initial Margin, and it is set by the exchange on which that Futures contract is traded. Intraday Margin, or Day-trading Margin, is referred to the amount of margin required to open and close a position within the same trading session, and it is set by the Broker and/or the Futures Commission Merchant (FCM) where your funds are held, and can vary from firm to firm. In Forex, at the retail level, we commonly use only one type of margin, and it is set by the Forex Dealer Merchant (FDM) and it cannot exceed the maximum allowed by the law, currently based on the 100:1 leverage.
While our margins are among the lowest in the industry, we strongly suggest you not to use this leverage to its limit by committing all of your capital, as again leverage may work for you as well as against you. Instead, using leverage in a conservative manner is an essential part of your risk management and trading attitude, and it should be an important step toward your growing trading experience. You should always have residual leverage to utilize as a buffer to help you getting through normal market swings.
Risks associated with electronic trading
You are responsible for maintaining the confidentiality of your account and password and for restricting access to your computer. By opening and funding your account you are accepting responsibility for all activities that occur under your account or password. You should never let anyone else trade on your account, unless you have signed a Limited Power of Attorney document authorizing someone else to trade on your behalf. You should never provide your confidential account information to anyone, except when you call our office and, for security reason, you are asked to verify your identity. If you have reason to believe that your account may have been compromised, please contact our office immediately to change your account access information.
Please keep in mind that trading through an electronic trading or order routing system, or trading platform software, exposes you to risks associated with system availability, component failure, market conditions, internet connection issues and other independent factors. Therefore, it is possible that for a certain time period, you may not be able to enter new orders, execute existing orders, modify or cancel orders that were previously entered, and you may lose orders or order priority. FastBrokers, the FCM, the FDM, Software developer, or any other Counterpart or Affiliate, assume no responsibilities for any loss resulting from failure of any of the above.
Trading platform disclosure
FastBrokers, the affiliates or third party providers (“related parties”), warrant the accuracy, completeness, timeliness, reliability, fitness for a particular purpose or merchantability of any information to which end user has access through any of the Trading Platforms (“Programs”) offered. Also neither FastBrokers, nor any related parties warrant the materials, workmanship or performance of the Programs. All other warranties, express or implied are excluded. In no event shall FastBrokers, or any related parties be liable for (1) any loss, cost or damage, whether in whole or in part, suffered by end user as a result of any decision made or any action taken in reliance upon information to which end user had access through the Programs; or (2) any trading losses, lost profits or any other consequential, special or incidental damages, whether or not reasonably foreseeable, and even if advised of the possibility of such damages. Any and all information accessible through such Programs are the sole and exclusive property of FastBrokers and/or the Programs developer and their affiliates, which retain any and all Intellectual property rights therein. End user may not redistribute such information to any third party without the prior written consent of the owner thereof.
The foregoing statement is intended as supplement to all other risk disclosure documents provided to you during the opening account process and it is not intended to replace or enter into a conflict of terms with any other risk disclosures offered by your clearing firm. Additionally this document does not disclose all of the risks and other significant aspects of trading in Futures, options on Futures and Foreign Exchange (Forex). In light of the risks, you should undertake such transactions only if you fully understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk. Trading on futures, options on futures, or forex is not suitable for everyone. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances.
Nothing on FastBrokers’ web sites, emails or any other form of communication or advertisement is intended to be a recommendation to buy or sell in any Futures, Options on Futures or Forex markets. No representation, implicit or explicit, has been made that any account will or is likely to realize any particular profit or loss.