Joined: 22 Aug 2015
|Posted: Sun Jan 03, 2016 10:26 am Post subject: Risk in Forex Trading
Risk in Forex trading
Factors such as the size, volatility and global structure of the foreign exchange market have all contributed to its rapid success. The modern Forex trading technologies enable the taking of big profits in a short period of time: brokers provide their clients with leverages; client terminals support the function of automatic trading etc. Indeed, with Forex it is possible to become rich in a moment but it is also possible to lose everything at once.
Main market and non-market risks.
Exchange rates volatility
Exchange rate volatility refers to the tendency for foreign currencies to appreciate or depreciate in value, thus affecting the profitability of foreign exchange trades. The volatility is the measurement of the amount that these rates change and the frequency of those changes. Price spikes can lead to financial losses. While opening a deal a trader should consider that prices are subject to various fluctuations. Therefore, it is necessary to control the opened positions or to place limit orders.
Dynamics of prices is affected by various economic and political events as well. The release of breaking news can provoke significant price changes. Moreover, from time to time the central banks carry out the currency interventions in order to influence the exchange rate of the national currencies. Interest rates also play an important role as they can lead to the changes in exchange rates.
The risk of using a leverage
The concept ofleverageis used by both investors and companies.Investors use leverage to profit from the fluctuations inexchange rates between two different countries. The leverage that is achievable in the Forex market is one of the highest that investors can obtain. Leverage is a loan that is provided to an investor by the broker that is handling his or her Forex account.
The profitability of deals can be significantly multiplied if you use the assets borrowed from a broker. The higher the profit is, the greater the risks are. The losses cannot exceed the equity of a trader, but if a trader uses a big leverage, then even the slightest price movement in the opposite direction can reduce the deposit to zero.
In order to control deals and to find a right moment for making a buy or a sell deal, a trader needs a computer and a constant access to the Internet. There is always a possibility of unexpected power cutoff, equipment errors or disconnection. As a rule such alternative devices as smartphones, laptops and tablet computers can be a good solution.
While trading on Forex there is a risk to choose an unreliable broker. Prestigious brokers are not really interested in losses of their clients. That is the reason why they try to ensure the maximum transparency of their activity and propose the effective trading instruments. Reliable companies neither deliberately change the exchange rates nor play against the client!
Psychology of traders
Available trading and high speed of deals execution can seem easy and simple. If you consider the trading as an exciting game, you can pay for this with your own money. A traderís decision is influenced by various psychological factors. Therefore, it is necessary to learn how to control your emotions
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