The Illusion of a Quick Profit Results in Loss

We have cooperated with CNN Greece to educate clients and the market with an emphasis on warning against the risks of leveraged products and financial derivatives:

We have cooperated with CNN Greece to educate clients and the market with an emphasis on warning against the risks of leveraged products and financial derivatives:

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Watch our educational videos:

https://www.youtube.com/watch?v=6uiGhONDJ28&list=PLkWxlqODjAmPhDGsp09a4n7k9fp-sNR1P 

The Illusion of a Quick Profit Results in Loss

It seems so easy for everyone to act online on capital markets nowadays. Moreover, with certain financial instruments retail investors are allured by the vision of high profits, which do not correspond with the amount invested. This is because of leveraged trading in an investment instrument called “contract for difference”, also known as CFD. With a simple mobile trading platform in our hand, it is very probable that we will not realize how extremely risky the CFDs are.

 

Leverage trading with CFDs

How does the financial leverage with CFDs actually work?

As opposed to stocks or currencies, contracts for difference have been used in trading and investing only recently – since 1990s. At the beginning they served financial institutions to hedge against exchange rate movements of stocks and other assets. It was only later when they became a product traded by smaller investors and traders. 

When using CFD instruments, the trader does not become an owner of a physical stock (or any other underlying asset), which means he also does not have any rights to profit or voting rights. 

CFD are financial derivatives that are used for price movement speculations. In simple words, CFD is created by opening a position and is finished by closing a position. Traders may speculate on price decrease or growth. When closing a position, trader’s speculation is compared to the real price movement, which means a calculation of a profit or loss.

 

Multiplied profit or loss 

The trade’s outcome can be multiplied by financial leverage, which enables traders to add usually significantly higher amount of external capital to their own capital. Leverage of 1:2, for example, means that a profit – in case that the trader expected correctly the price movement of the underlying asset – shall be doubled. In case of 1:5 leverage the profit shall be 5 times higher. The prospect might seem to be attractive until we realize that the same logic works for the loss too. Using financial leverage thus means that traders can lose their entire investment even with a relatively small change in the price of the underlying asset.

 Learn more about the principles and risks of CFDs before trading with us. Goldenburg Group discourages any unexperienced trader or an investor with any level of risk aversion from investing their capital in CFDs or other leveraged financial instruments. The cautiousness is even more important nowadays when markets are extremely volatile.

In spite of the warning, if an investor wants to become a trader with these high risk instruments we strongly recommend to study how the capital market and modern financial instruments work prior opening any position in the market. Also, it is indispensable that an unexperienced trader starts with a demo first.

Goldenburg Group is dedicated to long-term education of clients and the market. Follow the educational section at our website.

 

 Goldenburg Group Limited is a fully licensed company, supervised by the Cyprus Securities and Exchange Commission (CySEC), with CIF License number 242/14, providing a comprehensive investment services internationally.

 

Disclaimer: The content of this material constitutes Marketing Communication and does not constitute Investment Advice or Investment Research or an offer for any transactions in financial instrument. The content of the material represents the view of our experts on a generic basis, and does not take into consideration individual readers personal circumstances, investment experience or current financial situation. In addition, the material has not been prepared in accordance with legal requirements designed to promote the independence of Investment Research, and is not subject to any prohibition on dealing ahead of the dissemination of Investment Research. Readers using the material should consider the possibility of encountering substantial losses. The past performance is not a guarantee of future results. Therefore, Goldenburg Group Limited, its relevant persons including affiliates, agents, directors or employees do not guarantee the accuracy, validity, timeliness or completeness of any information/data made available and assume no liability for any loss of traders arising from any investment made based on the said information/data and due to the use and the content of this material.

 

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.14% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Disclaimer: The content of the Reports constitutes Marketing Communication and does not constitute Investment Advice or Investment Research or an offer for any transactions in financial instrument. The content of the Reports represents the view of our experts on a generic basis, and does not take into consideration individual readers personal circumstances, investment experience or current financial situation. In addition, the Reports have not been prepared in accordance with legal requirements designed to promote the independence of Investment Research, and are not subject to any prohibition on dealing ahead of the dissemination of Investment Research. Readers using the Reports should consider the possibility of encountering substantial losses. The past performance is not a guarantee of future results. Therefore, Goldenburg Group Limited shall not accept any responsibility for any losses of traders due to the use and the content of its Reports.