FXCM trader agreement – effect of leverage or gearing

I am going over the FXCM trader agreement in preparation for opening my live trading account in a couple of weeks. I am going over the agreement slowly and carefully to try to make sure I understand what I’m signing before I sign it. I am also going over OANDA’s customer agreement as I mentioned in a previous post. I have not decided whether or not I will trade with FXCM or OANDA. I am leaning more towards FXCM but I have real concerns about both companies. I am especially concerned about the way FXCM appears so very interested in knowing how soon I plan to start trading and how much money I intend to start trading with and what my trading plans are. They claim to want to help me develop my trading plan and strategy and to help me chart my forex educational path. I suspect a lot of people find this level of interest very impressive but it sends off flashing red lights for me.

In any regard, I have yet to find a trading platform I like as much as I like the FXCM trading station; and with that clause in the OANDA agreement that seems to be suggesting OANDA can use my deposited funds to do whatever they want, I’m probably going to be going with FXCM unless I come across something outrageous in their trader agreement or I find out something about the company that’s worse than the things I’ve already read.

So, I am reviewing the trader agreement and in order to make sure I really understand it I will be making posts discussing my interpretation of each section for the next few days. This first post discusses my interpretation of the first item in the agreement.

Effect of “Leverage” or “Gearing”

Basically this section seems to be an attempt at briefly notifying the trader of the high risks associated with buying lot sizes you technically can’t afford but which leverage allows you to buy nonetheless. Essentially FXCM is letting you know that when you only have enough to afford to buy 1000 Euros but you buy 100,000 Euros by taking advantage of the leverage you’re offered, you run the risk of losing all the money you deposit into your account. That is how leverage works. It makes your profit higher than it would be had you purchased 1000 euros (if your trade is successful), but it also makes your loss higher if your trade is not successful.