CompassFX - Member, National Futures Association (NFA # 0232832)
Clients should read the account opening documentation, disclosure documents and trading regulations carefully so that they fully understand limitations to the policies regarding executions of stops and no deficit accounts.
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Trading foreign currencies in the off-exchange spot Forex market is a highly risky form of investing. It is not suitable for all investors. Before trading in the Forex market, you should carefully consider investment objectives, level of experience and risk tolerance. It is important to only invest money you can afford to lose.
There is a high degree of risk in trading off-exchange foreign currencies. Any market transaction involving currencies contains risks including, but not limited to, the potential for random political events and economic conditions that may significantly affect the market price or liquidity of a currency.
Furthermore, the use of high leverage in trading margin accounts means that any market movement will have an equally proportional effect on deposited funds. This may work in your favor or not. There is the possibility that you could sustain a total loss of funds deposited when you trade spot currencies should the market move against your positions. Traders may lower their exposure to risk by employing risk-reducing strategies such as stop-loss or limit orders.
There are also risks associated with utilizing an internet-based deal execution software application including, but not limited, to the failure of hardware and software.
In the "off-exchange" Forex market, there is no central exchange.
Firms are not restricted to effect exchange transactions. The clearing firm with which you deal may be acting as your counterparty to the transaction. It may be difficult or impossible to liquidate an existing position, to assess the value, to determine a fair price of to access the exposure to risk.
For these reasons, Forex transactions may involve increased risks. Off-exchange, also referred to as over-the-counter, transactions may be less regulated or subject to a separate regulatory regime.
There is considerable exposure to risk in any off-exchange foreign exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair.
Before you undertake such transactions, you should familiarize yourself with the applicable rules and attendant risks.
Leverage is about risk management. When a trader increases leverage in a trade, there is both the opportunity to make bigger profits and equally, if not more, have bigger losses.
Leverage is the use of borrowed funds to improve one's speculative capacity to potentially increase the rate of return from an investment, at the risk of greater losses. Leverage allows traders to borrow money and use that money to invest in the foreign exchange market.
Because of leverage, clients without a huge amount of capital are able to make large investments, whereas in other markets such as the equities market, clients would have to pay 50% of the full amount for each share of stock they were investing in. With new regulations, U.S. market makers allow positions to be leveraged up to 50:1. This means that if a trader wants to buy 1 "lot" worth of $100,000 with 50:1 leverage the trader only has to put up $2,000 for a standard lot account. If trading a mini lot account, the trader puts up $200 to trade at 50:1 for 1 mini lot worth $10,000.
More over, the leveraged nature of forex trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin requirement, your position may be liquidated and you will be responsible for any resulting losses.
CompassFX aims to provide clients with the best pricing available and to get all orders filled at the requested rate through our clearing firm parties. However, there are times when orders may be subject to slippage due to an increase in volatility or trading volume at the clearing firm. This commonly occurs during economic news events.
The volatility in the market may create conditions where orders are difficult to execute, since the price might be many pips away due to the extreme market movement. Although the trader is looking to execute at a certain price, the market may have moved significantly and the order would be filled at the next best price or the fair market value. Similarly, increased trading volume may also result in slippage if sufficient liquidity does not exist to execute all trades at the requested rate.
Once a stop limit or stop loss order is triggered, it becomes a market order, and there is no guarantee it will be filled at any particular given price. Therefore, stop orders may incur slippage depending on market conditions.
The concept of slippage is not unique to the forex market, as it often occurs in the equities and futures markets.
Delays in Trade Execution
A delay in trade execution may occur for various reasons, which may result in delayed orders or price requotes from the clearing firm. Often, the cause of delay execution is with the trader’s internet connection to the clearing firm's servers.
It is possible that a trading platform on a trader’s computer may not maintain a constant connection with the clearing firm servers due to a lack of signal strength from a wireless, hard-wire, or dialup connection. A disturbance in the internet connection between the trader's computer and the clearing firm's servers can sometimes interrupt the data feed and trade execution signal, thus disabling the trading platform from proper functioning and causing delays in transmission of data between the trader’s platform and the clearing firm's servers.
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