Forex risks that traders need to know about
The forex exchange market just like any other market is an industry that is faced by risks. The forex market is one of the world’s largest markets with the highest trading volumes including currencies and assets. Traders who put their money in these markets buy them at a price and sell at a higher price to make profits. It is a risky way of making money that can lead to unforeseen loses. Here are the significant risks you are likely to come across as a forex trader.
Interest rate risks
Interest rates are likely to fluctuate frequently. The situation of interest rates drives the forex market. As a forex trader, you should always be aware of the interest rates changes to guide your trading decisions. Increase in interest rates leads to increased currency trading rates. As a result value of your assets is likely to improve. When interest rates decrease, the currency loses its value and leads to loses. Making a trade at such a time is not a good idea and will make you losses.
For a trader to participate in the foreign exchange, they are expected to make a small investment to act as leverage. Even the slightest change to the price will result lose, and the trader may be required to deposit more money as leverage. While in such a situation you might be tempted to panic making you use your leverage aggressively. It is highly discouraged since it can lead to even more loses.
You should consider the economic status of your country when making a trading decision in the foreign markets. A currency crisis such as balance deficits or currency restrictions can lead to shifts in the market causing loses. Countries that are highly dependent on currencies say the US dollar as the main trading currency are more at risk because their central banks control their exchange rates leaving them vulnerable.
With the online trading platforms, traders are at a higher risk not falling into the hands of a fraudster. As a result, you should make sure to do enough research to determine the authenticity of a broker. Before trading with any broker always check with the regulatory body in your country or state to determine their authenticity.
As a trader, you expect that your counterparty can meet their part of the deal. Traders risk having the other counterpart not being in a position either voluntarily which is a refusal or involuntarily due to bankruptcy. Although strict rules have been applied to reduce these cases, it is upon you to carefully check and double check the financial status of your counterparty. In case of an alarm, you should notify the authorities for action to be taken against them.
Although the rate of forex trading may appear to be overwhelming, you can still leap lots of benefits when it’s successful. You should make sure that you evaluate these risks before you start trading and monitor them frequently. It will save you from getting caught by surprise, and you will know what to do when it happens.