DISADVANTAGES & RISKS INVOLVED IN TRADING CFDs
RISK WARNING
CFDs carry a high level of risk to your capital and you should only deal with money you can afford to lose. The value of investments can fall as well as rise and you may lose significantly more than your initial margin payment. This online guide should be read along with the application pack and brochure you receive when you apply for CFD dealing with Quantaur Capital Ltd. We do not recommend that CFD dealing as a suitable investment tool for all types of investor. We recommend that you consult an independent financial adviser if you are uncertain whether CFDs are the right investment vehicle for you. You must understand and accept the terms and conditions contained in the application pack, and sign a risk warning notice before you begin to deal in CFDs.
Dealing in CFDs is a high risk investment, and so you should only deal in CFDs if you understand the risks. There are several risks that you should consider before beginning to deal in CFDs.
LEVERAGE
Due to the nature of CFDs the benefits are multiplied by a ratio of typically 5, then likewise so is the potential loss. So while CFDs are potentially more rewarding than ordinary share dealing, this also means that the risks and potential losses are also greater.
DEPOSIT AND MARGIN REQUIREMENTS
CFDs do not require the full amount of the transaction value to be paid initially. When you take out a CFD, you will be asked for a deposit for that transaction, typically around 10%. CFDs can remain open as long as you want, and so the CFD must always have sufficient collateral support to cover potential losses. If a CFD moves into a loss-making position, then the broker can make what is known as a ‘margin call’. This is where you would be asked to deposit additional funds to ensure that the CFD remains solvent and is not closed by the broker.
- All individual margin positions must be supported by the client
- It is the responsibility of the client to monitor CFD positions
- We reserve the right to close all margin positions not supported.
PRICE MOVEMENTS
Rapid price movements in share price need to be monitored closely as they can dramatically alter your level of exposure. For example if a stock collapses due to an unexpected press announcement then a client who has purchased long in the stock runs the risk of heavy losses unless they are able to exit immediately.
Losses can be minimised by using Stop losses.
INTEREST
Interest payments are required to support long positions that are held overnight. The rates tend to be more attractive than those for a typical high street personal loan but more than the Bank of England base rate. They are based on an interest rate at which Banks lend money to each other.
SHAREHOLDER PRIVILEGES
With CFDs you don’t actually own the shares so you do not receive all the privileges normally associated with share ownership, such as voting or invitations to AGMs. Dividends (at 90% of net value) are credited to your account if you hold a long position, and debited (at 90% of net value) from short positions held at the close of business the day before a dividend is due.
RISK WARNING
CFDs carry a high level of risk to your capital and you should only deal with money you can afford to lose. The value of investments can fall as well as rise and you may lose significantly more than your initial margin payment. This online guide should be read along with the application pack and brochure you receive when you apply for CFD dealing with Quantaur Capital Ltd. We do not recommend that CFD dealing as a suitable investment tool for all types of investor. We recommend that you consult an independent financial adviser if you are uncertain whether CFDs are the right investment vehicle for you. You must understand and accept the terms and conditions contained in the application pack, and sign a risk warning notice before you begin to deal in CFDs.
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