In order to trade successfully, you must fully understand risks involved, what traders call “Risk”. Every trader will approach market and there are many trading systems in different ways, there is basically no right or wrong way in this trading market. However, there are trading risks that every trader must accept as any trading system is perfect.
What are risks in Forex trading?
Risk is precisely loss that trader does not want. Risk in trading is also a dangerous part of forex trading, you can lose part or all of your initial investment. An online investment with a larger investment capital, greater risk and profit, on contrary, smaller investment capital, lower risk and return will be.
Volatility that we see in daily price, combined with leverage offered in forex market relative to other financial instruments such as stocks. That is exactly why Forex is classified as high risk.
There are two basic ways of classifying risks:
- Risks Considered: As every seasoned professional trader knows that market risk, bankruptcy risk, economic and political risk, disaster risk, fraud those factors can be potentially possible. happens that you have to consider for yourself.
- Unconsidered risk: it is sometimes called ‘specific risk’. For example, economic news that affects a certain country affects its own currency Diversifying across multiple unrelated currency pairs is only way to truly protect a portfolio from losses due to risk.
Inflation risk
There is no commitment if, when a country defaults, it could harm performance of all other financial instruments in that country as well as other countries involved. Risk impacts stocks, bonds, mutual funds, options, futures and most importantly currencies issued in a particular country. As we can see, Venezuela has been in a financial crisis, leading to inflation and poverty to point where people are starving and they used to be very, very rich.
Exchange rate risk in trading
When investing in foreign currencies, you must consider that fluctuations in exchange rates of countries that are closely related to each other, can also have a strong impact on price of currency in question.
Interest rate
The interest rate increases or decreases during term of open trade, which will affect amount of interest you can pay each day until trade closes. If you sell currency at a higher interest rate, you will be charged daily interest at time of transfer based on that exchange’s conversion / interest rate policy, which we often call “swap fees” .
Political and economic
Risks through economic or political events in a country will cause immediate and dramatic changes in price of a currency relative to that country. Example of Venezuelan financial crisis that affected political as well as economic activity sector a lot, Venezuela was rich thanks to its dependence on crude oil market, until the president Donald Trump re-establishing the big oil corporations turned situation upside down.
Financial market
Because market movement is reason why people can make money, volatility is essential for profits and currency pairs are more volatile. It seems that, no trader can know how future of market price will move, so it is risky if price movement goes against his judgment.
Losing Internet connection
This is a particular risk that many traders don’t give much thought to. However, all trades forex traders do online transactions, so without internet it is impossible to open any trades. So, are there some considerations you have alternative internet service? Do you have a spare computer? or a replacement smartphone or tablet device in event of a problem?
Being scammed by Forex or BO brokers
Field of Forex activity is completely different from field of BO binary options. Forex operates under a decentralized market and may be regulated by some reputable financial regulators and some not. Absolutely, for BO there is hardly any governing body. Also, worse than that, beginners will fall victim to scam forex brokers like UgreenFX, Pi Network, Remitex and after you have been scammed there will be a huge prejudice against forex brokers shared.
There are countless other scam forex brokers out there and we recommend you check out ITIGTrader or ForexITIG sites, they are place to identify best scam forex brokers available today.
There is no exact level of risk
Often, investors think they are willing to take risk, but when worst happens, they discover that they are not. You will probably lose money in process of this learning, but if this loss helps you to gain this level of understanding then you can cover loss financially. It is important to determine in advance how much you are willing to ‘pay’ for this process of starting trading as an “investment lesson”. Remember, exchange always offers free Demo accounts for all customers.
Conclusion about risks in Forex investment
Each trader has different conditions such as investment capital, psychology, thinking, knowledge and experience… a lot and everyone will have different risk tolerance. As you become more experienced, ability you know how to use to manage risk.
