- Capital security
The most important issue in the transaction is the security of funds. NFA clearly stated in the official promotional materials for OTC’s foreign exchange retail customers: OTC foreign exchange has no guarantee from the settlement institution, and the deposits used by customers to buy and sell foreign exchange and contracts are not protected by any regulatory agency, and are not given priority in bankruptcy; The client’s funds are deposited by the broker in a bank account with FDIC insurance, and the client’s funds are not protected in the event of the broker’s bankruptcy.
Even if the NFA and CFTC are registered and regulated by RefcoFX, the domestic customers’ funds are not protected, and even the “customers” are not. According to the US Bankruptcy Law, stock clients or commodity customers have the priority of liquidation claims, so when the broker goes bankrupt, the possibility of maintaining all funds is quite high. However, since foreign exchange spot is neither a stock nor a commodity, the foreign exchange spot customer is neither a stock customer nor a commodity customer. It is precisely because of the lack of legal status that domestic foreign exchange investors who open accounts at RCM are unable to enjoy “customer” treatment in bankruptcy liquidation, and can only enter the bankruptcy liquidation procedure as an unsecured creditor, which may result in a loss of money.
- Market risk
The foreign exchange market operates 24 hours a day without any price limit. When the fluctuations are severe, it is possible to complete the movement within a few months. The trend of foreign exchange is affected by many factors, and no one can accurately judge the trend of the exchange rate. Any unexpected exchange rate fluctuations can result in large or even total loss of funds when holding a position.
- High leverage risk
Each investment involves risk, but because of the high capital leverage model used in foreign exchange margin trading, the amount of loss is magnified. Especially in the case of using high leverage, even if there is a small change opposite to your position, it will bring huge losses, even including all the funds for opening an account. Therefore, the funds used for such speculative foreign exchange must be risky funds; that is, even if all of these funds are lost, it will not have a significant impact on your life and finances.
- Network transaction risk
Although most brokers have an alternate telephone trading system, foreign exchange margin trading is mainly through the Internet. Due to the nature of the Internet itself, there may be a phenomenon in which it is impossible to connect to the broker trading system. In this case, the customer may not be able to place an order or may not be able to damage the existing position, which will lead to unpredictable losses. . Brokers are exempt from this, and even the broker’s trading system will not be held liable. Similarly, the real trading of domestic banks is also exempt from such risks, which is clearly stated in the terms of the agreement to open an account.
In addition, as mentioned above, whether it is domestic real foreign exchange, or foreign exchange margin trading, in certain periods (such as when the US major data is released, or when the market price fluctuates), it is impossible to connect to the broker. The phenomenon of trading on the system is more common, and investors should be fully aware of such risks.