Trading and risk always go hand in hand. And, of course, even the so popular Forex currency market is no exception in this respect. However, many traders, especially beginners, often neglect information about risks. The result is financial losses. Below we are going to tell you about it or, to be more precise, about how to try to avoid it.
Forex – big opportunities
Forex makes currency buying and selling as easy as possible, at the same time, it gives the trader the necessary freedom: it is both leverage and a wide choice of currency pairs. Increased risk level, when trading at the exchange market, requires a serious attitude and complex approach. The trader must always be aware of his actions and understand what consequences his decisions may have. In order not to find oneself in a big loss, as it happens with thoughtless buying and selling of assets, one must always evaluate the amount of one’s own funds, set goals, and own capabilities. In this regard, two aspects deserve special attention:
In the case of Forex, leverage plays a huge role, which, on the one hand, allows you to trade on a larger scale, but on the other hand, it is an opportunity to quickly lose profits and own funds. A broker, through which a trader works in Forex, usually takes commissions. They are best understood from the very beginning of cooperation and should always be taken into account when trading.
- Leverage. Leverage does not require a large initial investment, and leverage provides access to large transactions in foreign currencies. However, even small price fluctuations can lead to a loss of capital.
- Interest Rate Risks. The risk is that the market value of a particular asset will decrease as a result of changes in interest rates on the stock exchange.
- Currency risk. The risk arises from strong fluctuations in foreign currency exchange rates.
- Credit risks. Credit risk means the risk of default by a dealer or broker. Especially, it is crucial for the unstable market situation when the counterparty refuses or simply is not able to fulfill the contract terms to the full.
- Country currencies. The choice of the currency for investments depends on the stability of its issuing country. In case of a currency deficit, the devaluation of the local currency can start with the corresponding reaction on the Forex.
Despite the fact that the list of risks is not too long, each item in it is relatively complicated for a beginner trader, so the total risks when trading on the Forex market may turn out to be higher than initially expected. However, with proper experience, they can be minimized.