Risks of trading without leverage and can they be avoided?
Forex trading has gained a bad reputation mainly due to the high leverage and risks involved.
On almost any website related to stock trading, you will find a warning that using margin trading you can lose your money.
It seems that if you don't trade exclusively with your own money, that is, open trades with a volume less than or equal to the amount in your account, then the risk of losses will be reduced to practically zero.
But in reality, there are times when you can lose your entire deposit without even using leverage, meaning the lack of leverage is no guarantee of safety when trading on the stock exchange.
A risky asset is, of course, primarily cryptocurrency . There are times when the value of a purchased cryptocurrency not only falls, but practically drops to zero. In this case, the loss amounts 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 invested in its securities, shareholders are at the bottom of the list of those who will receive compensation in the event of bankruptcy. This means that the value of a company's shares is practically zero in the event of bankruptcy.
Contract type – these transactions include binary options; leverage is not used, but in the event of an incorrect forecast, losses can amount to up to 95% of the transaction amount.
Futures can also be considered particularly risky. Everyone remembers the situation in April 2020, when the price of West Texas Intermediate futures contracts fell below zero, to minus $37. Clearly, if you had bought oil before this, your trade was likely stopped out .
Broker bankruptcy is a systemic risk, but if such an unpleasant situation as brokerage bankruptcy occurs, you lose all your money not only without using leverage, but without even opening any trades.
Lately, such situations are happening less and less often, but it is still worth considering this possibility and choosing brokers with client 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, it is advisable to open trades where a stop-loss order can be placed for that asset.
Cryptocurrency brokers with stop-loss options.
A stop-loss order remains the most effective tool for protecting your deposit. Setting one allows you to limit losses and close a trade automatically if the price moves against your open position.
Another effective tool is diversification . You shouldn't invest all your money in one asset, keep it in one account, or even with one broker. While this isn't always convenient and requires additional effort, it will help you avoid losing all your capital even in an unusual situation.
As trivial as it may sound, it is always easier to prevent a situation than to deal with the consequences later.
