Managing Your Risks

In order to be a successful trader, one needs to understand how to manage risk.Here is some important information that is vital in understanding the risk of Margin Trading:

• The concept of Margin Trading

GCM offers direct access to the world’s international financial markets. A key advantage of GCM products offering is that all transactions are traded in margin (or initial deposit). This means that for a small amount of money, investors can obtain exposure to a much larger trading position hence a possibility of making a large profit with a relatively small stake. Margin is a good faith deposit giving the investor the right to buy or sell the value of the underlying contract of an investment product.

• Leverage (also known as gearing)

The idea of leverage – i.e. the use of debt to increase the expected return on your capital outlay has the distinct advantage of depositing less to gain greater exposure to a market than if you were to make a purchase in your market through a stockbroker or any other share-dealing service. Trading in these larger volumes, in turn allows investors to take full advantage of small price movements. This application is called leveraging (or gearing) and is the key to trading these volatile markets.

For example, a traditional share transaction on, for example 500 shares of IBM trading at US$80.00 per share, requires the full payment of US$40,000 to purchase US$40,000 worth of shares, additional commission charges are also necessary.

However, with Margin Trading, you only put up a small portion of the underlying value. In this case, a typical requirement is 20%; therefore, US$8,000 of margin is all that is required to open a Margin Trade in the equivalent of US$40,000 worth of IBM shares.

In summary, the major difference is that the physical share trade requires payment of the full US$40,000 (plus commission) to enter the trade, whereas with Margin Trading you take a position of equivalent size and only deposit US$8,000 .The maximum potential profit is the same with both transactions but the maximum potential loss in Margin Trading is limited to your initial margin, or risk amount, of $8000.

Now that you fully understand the risk of Margin Trading, you need to know how to manage these risks. GCM allows you to manage your risk on every trade you place. To do so an automatic stop loss order is attached to every trade that you take. In addition, you can use Limit Orders to take profit. You can place Stop and Limit Orders online using our trading platform, allowing you to implement your personal trading strategy efficiently.

GCM provides an execution only service and does not offer investment advice. Before placing orders, you should ensure you fully understand the risks and seek independent financial advice if necessary.