Trading foreign exchange on margin carries a high level of risk, and the possibility exists that you could sustain a loss of some or all of your initial investment. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
The price in foreign exchange market can be changed by multiple factors including economic or political reasons. Fluctuations in currency may result in losses as well as gains on any given trade.
The large position can be held with small margin by leverage effect, which means that even small fluctuations in foreign exchange rates have a major impact on the client's profit or loss.
Swap points calculated based on the yield differential between the pair of currencies to hold will be reflected to clients when it is rolled over. Swap rates vary according to changes in the yield differential in the two currencies. A short position in the higher-yielding currency generates a payment of swap points by clients, at each rollover, on the other hand, a long position in the higher-yielding currency generates swap points as profit to the client.
In case clients' net assets amounts measured by the current rate of Foreign Exchange become lower than the required amount of margin by %, clients' position will be automatically settled. There is also possibility that loss greater than margin may occur and the account balance will be negative because of situations such as sudden foreign exchange fluctuation.
Although major currencies traded in the foreign exchange markets are highly liquid, the important events such as the announcement of major economic data or statements by influential individuals may result in declines in liquidity with the result that the order takes longer to execute. Trading can also become difficult in extraordinary conditions, including acts of nature, war, terrorism, political upheaval, or changes in foreign exchange policy.
In using an electronic trading system, the possibility exists any error by the client when inputting a buy or sell order can result in either the intended order not being fulfilled or an unintended order being executed. Electronic trading systems run the risk of being unavailable, either momentarily or for a period of time, as a result of a number of causes that include problems with either Forex-World's or the client's own communications or system equipment, technical faults or congestion affecting communications lines, disruption to the transmission of information, or problems with the electronic trading system itself. It is also possible that delivery delays or complete failure to receive a client's order instructions can render the order invalid.
The account numbers, passwords, and another information are at risk of theft or eavesdropping. Abuse of such information by a third party can lead to losses for the client. Therefore, clients should be careful not to leak their personal information.
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Broker is compensated by the spread between buy/sell prices.
Without proper risk management, this high degree of leverage can lead to large losses as well as gains.