Understanding Risks Associated with Forex Trading

April 2, 2013 by
Filed under: Copy Trader 

Every investment opportunity presents itself as the the main instrument for great gains. There is no investment vehicle, however, that does not have its fair share of financial risk in addition to the possibility of fiscal gain. It is a known fact that the higher the possibility of gain, the higher the risk. This is why the risks associated with forex trading are considered to be very high despite the possibility of profiting large sums of money.

There are various aspects and characteristics of Forex trading that make it a high risk and high gain option. Some of these have been discussed below.

  • The Forex market is the largest market in the world. Forex daily trading volumes are more than the total of all the stock exchanges of the world. Since the movements are based on currency prices alone, the markets are considered to be fairly volatile on a daily basis.  With more than $3 trillion being traded every day, there is a huge likelihood of making or losing large sums of money.
  • Forex traders are required to invest a standard minimum lot. While new online Forex brokers try to reduce the size of this minimum lot, the fact remains that the minimum amount required to be invested is considerable. This necessitates the need for leverage and therefore increases the risk taken by the trader when making a trade.
  • Forex markets operate throughout the day and night. The markets open when the Australian markets start trading on Sunday evening US time and close when the US markets close on Friday. This is why the opportunities presented by Forex markets are great.
  • When you trade in the Forex markets, you are buying one against another currency. This means that all rates and quotes are mentioned in the form of currency pairs; something that a new trader must get used to.
  • Given its volumes Forex trading attracts a fair amount of fraudsters and scams. The market does not have a global governing or managing authority and therefore is regulated differently in each country.. In the United States, for exampls, brokers must be registered with the Commodities Futures Trading Commissions or the National Futures Association to be considered legitimate. Indeed, the lack of global regulation harbors a higher degree of fraud since trading has become more international with the introduction of online trading and investments.
  • Since theForex markets deal with currencies of different countries, individual factors can change the course of trend lines and forecasts based on global economic or political movements. Understanding political, economic, historic, geographical and natural causes becomes a necessity if you want to be a significant player in the Forex markets..

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  • About me

    Charalampos KapetaniosMy name is Charalampos Kapetanios. I have a diploma in financial and management engineering and I have been working online from home since 2003. In this blog, you can find tips on online home businesses and especially on how you can start your own, since this is the most difficult part.
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