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FOREX TRADING RISKS
Please find below more information Forex Trading Risks. Just click on the links to get more information.
FOREX Risk Warning
As there is a high level of risk associated with trading foreign exchange on margin, it is advisable to consider certain elements prior to investing; such as your level of experience, your risk allowance and your objectives of investment.
The high degree of leverage that can often be involved means that forex trading is not always a suitable choice for every investor; as well as working for you, this leverage can also work against you. It is important to remember that you should not invest any money that you cannot afford to loose
Before proceeding to invest, it is always advisable to be aware of the risks involved; when trading foreign exchange there is a possibility that some or all of your investment may be lost. If you are in any doubt as to the risks, we would always advise that you consult an independent financial advisor.
FOREX Trading Risks
There are many sources that portray forex trading as a 'risk-free' way to make money, however this is not true. As with all types of trading, forex trading can either work with you or against you, and whatever amount of money you decide to invest; it is important to remember that there is always the possibility that you may loose and well and earn. Trading forex is all about managing that risk. Transactions are subject to unexpected rate changes, volatile markets and political events. Make sure you are well informed before you invest in forex trading.
The best tool you have when it comes to minimising the risks is to know the facts before you begin, because there are ways to limit your financial exposure. By taking the time to educate yourself you can begin to create your own strategy and learn how to minimise your losses and trade to earn a profit.
When it comes to signing with a broker, it pays to do some background checking. Not so long ago there was a fair amount of forex scams, and although the industry has somewhat 'cleaned up its act', it is still advisable to exercise a certain amount of caution.
Reputable brokers are generally associated with large financial institutions and they will be registered with the regulating government agencies.
Analysis of the market
Learning the basics of technical analysis is important to anyone looking to invest, this means getting to grips with reading financial charts and educating yourself to understand movements, the indicators and their interpretation.
Interest rate discrepancy
There is a risk when there is a discrepancy in the interest rates in two countries represented by a pair in a forex quote, the discrepancy can mean that the expected profits/losses of a particular transaction may vary.
Exchange rate fluctuations
Currency prices will fluctuate over a trading period, and substantial losses can occur if prices rapidly fall. However, this risk can be minimised through the use of stop loss orders, these specify the closure of a position at predetermined currency price, limiting the risk of loosing too much. Another order that may be used is the limit order; this will specify the closure of a position at a predetermined profit target.
When the deal is closed in a forex transaction, there is a possibility that one of the parties may not honour the debt (for instance, when a financial institution declares insolvency). However this risk can be minimised by dealing on exchanges that are regulated and require members' credit worthiness to be monitored.
Some governments (generally those of 'minor' currencies) may involve themselves in the forex market and 'limit' the flow of their currency to try and sway the market. However, 'country risk' is not associated so much with major currencies.
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