Risks involved in CFD trading in MENA?

Lack of liquidity

When trading CFDs, you essentially trade contracts between yourself and the broker. 

It means that if there is low liquidity in the market, it can be challenging to find someone to buy or sell from. brokers liquidity providers.

As a result, prices may be more volatile than usual.

Slippage

Slippage is when the price of an asset moves against you after you have placed a trade. 

For example, if you request a buy order for $100 worth of Bitcoin at $10,000 and the price moves to $10,050, they will fill your order at $10,050 rather than the $10,000 you asked for. 

Slippage is a risk in CFD trading because if you are dealing with large price movements, it’s likely that this will happen to you at some point.

Leverage

It means that when you buy or sell an asset using leverage (borrowed funds), your position is magnified and therefore gains and losses can be higher than they would otherwise be. 

For example, let’s say you bought $1,000 of BTC using 10x leverage. 

That means the broker has given you $10,000 to trade with, meaning that a 1% gain on your position would result in a 10% return on equity, while a 1% loss would mean a 10% loss of the account’s total value. 

When trading CFDs, it’s important to remember that gains and losses are amplified and quickly add up.

Margin Calls

When the broker demands that you add more funds to your account to maintain your current position, it is a margin call. 

It could be because the market has moved against you, and your account equity has fallen below the required margin level. If you can’t meet the margin call, your broker will sell some or all of the positions in your account to cover the shortfall. 

This can result in a loss of profits and increased losses on any open positions.

Price Manipulation

Price manipulation is when someone (or a group of people) tries to manipulate the price of an asset by buying or selling to profit from the resulting price movement. 

It is a risk in any trading, but it’s especially prevalent in CFD trading because of the high leverage levels available.

Fake News

Always be aware of potentially fake news when trading CFDs. 

It is where someone spreads false information to manipulate the market in their favour. 

You can’t always determine whether the information is accurate or fake, so it’s essential to research before making any decisions.

Price Volatility

The prices of assets can move up and down quickly and unpredictably, which can lead to significant losses if you’re caught on the wrong side of the trade. 

In markets with low liquidity, like MENA, this is especially true. 

No Stop-Loss

A stop-loss function automatically closes your position if the price reaches a certain level. 

It helps protect you from further losses if the market moves against you. 

However, many brokers do not offer this feature when trading CFDs, so it’s essential to be aware of the risks involved.

Diversification

When trading CFDs, it’s important to remember that you are exposed to a particular asset class or market. If that market falls, your entire portfolio will likely fail with it. 

Therefore, it’s essential to carefully consider your risk tolerance and diversify your portfolio across different asset classes, countries and industries to reduce the risk of significant losses.

Downtime Risk

When trading CFDs, there is always a chance that your broker will suffer downtime or system failure. 

This could result in you being unable to trade for an extended period, which may then cause further problems if you need to exit a position quickly due to adverse market moves. 

For more information on risks involved with CFD trading and how to avoid it, link to saxo bank uae.