The forex market is well-known as a paradise for investors thanks to the high profit and unlimited trading time. However, there are risks of forex trading that traders must know about. To keep yourself safe, don’t skip this article. We’re going to talk about all of the risks of investing in forex.
Trading with high leverage
Trading forex using leverage is a great way to maximize your profits. As a trader, you can use leverage to multiply your money in your account in order to earn a higher profit than your investment. However, this will lead to potential risk. Because when you profit can multiply, so does your loss. That’s why experts always view leverage as a double-edged sword. It affects significantly how much money you’re going to earn or lose.
There are certainly risks when you use high leverage. Here’s how to keep the risk low:
You have to accept the fact that your chance of loss will rise significantly when you start using leverage. If the market is highly volatile and your risk management plan hasn’t been proven to work, you should not use too high leverage.
Too many instruments
It is undeniable that there are hundreds of trading instruments in the forex market. Depends on your broker, you can trade from 20 to 200 instruments of your choice. However, this wide range of choices can result in you losing a huge investing opportunity. Why so? Trading multiple instruments at a time can make you lose focus. You must accept the risks that there are too many instruments available. You need to have a strategy that can help you focus on just several markets at a time to make proper moves.
Start with less instruments. Even an experienced traders can miss huge chances and face serious risks when tracking too many markets.
A very volatile market
Every market has its volatile moments. However, the forex market is widely believed to be the most volatile. The price goes up and down like crazy every minute. Why is that? Because the forex market is the biggest market in the world. Millions of traders trade every moment, which makes the market price change very rapidly.
If you’re a scalper, you must acknowledge this risk. Do not scalp when the market is highly volatile. The outcome of those trades are usually losses.
Not many chances for small traders
Besides individual traders, the participants in the forex market also include big banks, funds, or financial institutes. Thanks to their exclusive source of information or huge amounts of trading volume, they can affect the price in the market. There’s nothing we can do about it. As small traders, our best effort is to try to update the news constantly to make profits.
Less protection from the laws
Another great risk of the forex market is that not many countries consider it legal. Trading CFDs contains too many risks so as a way to protect the people, governments don’t allow it. If you’re from one of those countries, you will not be protected by any laws when you trade forex. Your loss is your own responsibility.
Those are the risks of forex trading that traders should know about before joining this market. If you think you can handle these risks, you’re welcome to trade forex anytime you want.