CFDs and Forex are leveraged products and carry a high level of risk to your capital. Do not invest in these products with money you cannot afford to lose and ensure you fully understand the risks involved. Due to fluctuations in value, the investor may not get back the amount s/he has invested.
For example: It is June and you believe Vodafone is about to rise. The price for Vodafone is 109-110p and you buy 3,000 CFDs at 110p. You do not pay commission or Stamp Duty, and you need £165 of available margin (5%) to open your trade. By mid July, the Vodafone price falls to 101-102. You decide to sell 3,000 CFDs at 101 and incur a loss. Opening Level: 110; Closing level:101; Difference: 9p; Loss on trade: 3,000 x 9p = £270
You would also incur financing charges on your long position. With certain transactions clients may not only lose what they have invested at the outset but may incur a liability to pay further unspecified amounts at a later date.
The inherent concept of Derivatives means that they are not suitable for an investor seeking an income from his investments because the income from such investments may fluctuate in value in money terms. For an investment in an OTC product, which is not a readily realisable investment, it may be difficult to sell or realise the investment and obtain reliable information about its value or the extent of the risks to which it is exposed.
The value of investments denominated in foreign currencies may diminish or increase due to changes in the rates of exchange. Derivatives are therefore only suitable for those customers who fully understand the market risk and have previous trading experience. It is advisable to seek independent advice if necessary.
