Risks of trading without leverage and can they be avoided?
Forex trading has fallen into disrepute mainly due to the high leverage and risks that this instrument carries.
On almost any website related to stock trading, you will come across a warning that using margin trading, you can lose your money.
One gets the impression that if you do not trade only with your own money, that is, open transactions with a volume less than or equal to the amount in the account, then the risk of losses will be reduced to almost zero.
But in fact, there are times when you can lose your deposit without even resorting to leverage, that is, the absence of leverage is not a guarantee of safety when trading on exchanges.
A risky asset - first of all, this is, of course, cryptocurrencies ; there are cases when the value of a purchased cryptocurrency not only falls, but practically drops to zero. In this case, losses amount to 99% of the deposit, which is equivalent to losing it.
You can also lose all your money if a company goes bankrupt; if you have invested in its securities, shareholders are at the end of the list of those who will receive compensation in bankruptcy. That is, the value of a company’s shares during bankruptcy is practically equal to 0.
Type of contract – these transactions include binary options; leverage is not used here, but in the event of an incorrect forecast, losses amount to up to 95% of the transaction amount.
Futures can also be classified as particularly risky contracts; everyone remembers the situation in April 2020, when the price of West Texas Intermediate futures contracts dropped below zero to minus -37 dollars. It is clear that if you bought oil before, then with a high probability your transaction was closed by stop out .
Broker bankruptcy - this risk is systemic, but nevertheless, if such an unpleasant situation happens as the bankruptcy of a brokerage company, you lose all your money not only without using leverage, but without even opening transactions.
Recently, such situations are happening less and less often, but you should still take this probability into account and choose brokers with customer deposit insurance .
Asset freezing is the blocking of your trading account, this occurs if your transactions raise suspicions on the part of the broker or payment system.
How to reduce the risks listed above?
If you trade cryptocurrencies, then it is advisable to open trades where placing a safety stop loss order is available for this asset.
Brokers for cryptocurrencies with the ability to set stop loss.
It is the stop loss order that remains the most effective tool for protecting the deposit; its installation allows you to limit losses and close the deal automatically if the price starts to move against your open position.
Another effective tool is diversification ; you should not invest all your money in one asset, keep it in one account or even with one broker. Yes, this is not always convenient and requires additional effort, but this approach will allow you not to lose all your capital even in an unusual situation.
No matter how trivial it may sound, it is always easier to prevent a situation than to eliminate the consequences afterward.