Risk management is a way to organise information and limits around uncertain outcomes. It cannot make a leveraged product safe or guarantee a result.
Risk note: Risk-management tools may help structure a decision, but they do not remove market risk or guarantee a particular outcome.
1. Risk tolerance and financial capacity
Risk tolerance describes a person's willingness to accept uncertainty, while financial capacity describes the ability to absorb loss. They are personal circumstances that this general guide cannot assess. This guide is general educational information and is not a personal suitability assessment, investment advice or a recommendation.
2. Leverage, margin and free margin
Leverage increases exposure relative to committed margin and can magnify gains and losses. Margin supports open exposure; free margin is equity not currently allocated as margin. Changes in floating profit and loss can reduce equity and free margin quickly.
3. Position size and combined exposure
Position size changes the amount exposed to market movement. Multiple positions can create combined exposure, including across instruments that may move together because of shared currencies, sectors or economic drivers. This guide gives no position size, leverage level or personal risk percentage.
4. Stop-loss and take-profit concepts
A stop-loss instruction is intended to close a position after an adverse price condition. A take-profit instruction is intended to close after a favourable condition. They can help express a plan, but neither ensures that the intended price or outcome will occur.
5. Why stop orders cannot guarantee a price
Available prices can change between the trigger and execution, particularly during volatility, low liquidity or a market gap. A stop may therefore execute at a different price from the requested level. It is not a guaranteed stop-loss result.
6. Volatility, liquidity and spread widening
Volatility describes the size and speed of price changes. Liquidity describes the availability of market interest at different prices. When liquidity is lower or conditions are stressed, spreads can widen and available prices can change more quickly.
7. Gaps and event risk
A market gap moves between available prices without trading at every intervening level. Scheduled or unexpected events can change volatility, liquidity and correlation. Event timing does not make the direction or size of movement predictable.
8. Automated-strategy risk
Automated tools can contain code errors, use unsuitable data, apply an assumption incorrectly or fail because of connectivity and platform conditions. Historical testing cannot guarantee future performance. Automation does not remove the need for oversight or risk controls.
9. Drawdown and demo-practice limits
Drawdown describes a decline from a previous equity peak. A demo can help a user understand interface mechanics and terminology, but it cannot reproduce every aspect of liquidity, execution, emotion, cost or loss in a live environment. The /trade simulation uses illustrative data only.
10. No strategy eliminates risk
No strategy, stop, diversification method or automated system eliminates risk. Leveraged losses can be substantial. Read the draft Risk Disclosure and the CFD Basics guide for additional general context.