Along with the Profits, which is the main reason for the traders
to trade Forex, it is extremely important to be conversant with
the Losses as well, which one can encounter while trading. While
it can be easily said that all financial investments are capable
of offering some risk or another, the risk involved while trading
foreign exchange deals and trades can be extensive at times. Forex
does have the capacity to make its traders go into tremendous loss
or low with their deals, because of it being a highly volatile
Hence, if you are taking into consideration, the idea of trading
with Foreign Exchange market, it is important for you to think
about the risks or at times, the frauds connected to the trading
market, to help you in making more sensible and conversant
It should be made clear to all who are willing to dive into this
Forex trading market, that Foreign Exchange is not a place suited
for each and everyone who have money to invest. Carrying along
with it a substantial amount of risk, trading with Forex should be
done rather cautiously. For instance, a specific amount of “Risk
Capital” should be kept aside for trading. These should be the
only funds to be used while dealing in highly speculative foreign
currency trading. “Risk Capital” represents the funds which one
can manage to bear a loss with, without upsetting his/her home
There are many reasons due to which a trader might suffer losses
in his Forex trade. The most important one being, that in this
speculative yet volatile market, no one knows when the markets
will turn against you. And while investing huge amounts of money,
although everyone is hoping for the market to go in their favor,
there are really chances for market to go along favoring all of
Everyone takes the risks, but while some have to bear the loss,
others win profits. Not much can be done with the risk percentage
involved while trading, but yes, there are some aspects of market
trading which if kept in mind, can prepare a trader for worse, as
well as alert him to make wiser trading decisions. Some of these
aspects are mentioned below.
Your trading platform could crash
If you are trading Forex using an electronic platform like
computer, internet or telephone, then there are chances for your
system to crash at any hour. This may unable you to get the
current and latest of what’s going on the market for a while, till
your system gets repaired.
Such a situation may result in making you inaccessible in the
market for some while, hence you may not be able to place new
orders, carry out existing orders, or close the previously entered
orders. Such a situation may result in a loss of orders and the
opportunities to close the deals, if any.
Opting for Off exchange
If you plan to opt for trading Forex through Off exchange methods,
then you are totally relying on your dealer and his honesty.
Off-exchange Forex trades are not backed by any clearing group or
firm. So, if your dealer goes bankrupt, there are chances that no
organization will be willing to back you up as here, you chose to
trade with a dealer, out of the market trading. And since no
market norms were followed while fixing the price of the
currencies to be exchanged, your money is likely to get no
insurance cover too.
Since there is no central place for Off exchange trading, it
likely, that the trading you do with your dealer outside the Forex
market, is not regulated. This is because the dealer is the one
here, who is determining the effecting price, so you are solely
banking on his honesty for a correct price and fair deal.
The market could go in opposition to you
Forex is a highly volatile market and predicting its movements can
be impossible at times. No one can predict entirely how the market
will move? That is the main reason why it has a high speculation
rate to it.
Definitely if you go buy studying the past trends and patterns of
the market, you can still make out roughly about the market
movements, but certainty is not possible. Fluctuations in the
currency exchange prices or rates can affect your trade or deals.
The market can move in favor or against you any time, resulting in
possible profit or loss.
Frauds or Scams
Forex is a highly potential market for frauds and scam artists.
Although the market is significantly safer and cleaner to trade
now, than it was a few years ago, care should still be taken while
dealing with a broker. Always check the documents before signing
any contract and read the terms and conditions fully. Being
vigilant is the key to safe trading. Also, always prefer to deal
with professional brokers who are attached to reputed financial
firms and banks. Also, registered brokers such as those listed
with the Commodities Futures Trading Commission or the National
Futures Association should be preferred.
Also, beware of any brokers or financial firms offering too good
schemes or deals, with very low or no risk trading guarantees. The
brokers claiming to offer higher returns should also be thoroughly
checked before signing up with them and starting to trade.
All the above mentioned risks can be avoided by keeping into
consideration that any of this can happen to you while trading.
Keeping this in mind will keep you prepared about the consequences
that you can face and hence, help you make wiser and informed
Although we know by now that Forex is a risky business, there are
a few measures, which have been created to limit, if not
completely stop, a trader’s financial risks.
Firstly, every investor should try and develop his/her own trading
strategy. Be it technical, fundamental, or both, every trader
needs to follow a strategy which logically backs the trading
decisions that he is making. All the market trading should be done
using the money which you can afford to lose, not affecting your
home finances, in case the market decides to go against you. Also
clearly mark your entry and exit points with every deal you make.
Along with the entry and exit points, a trader also needs to
posses thorough knowledge about the past trends of the market. How
to make graphs, how to study the financial graphs and how to read,
understand and aptly interpret the indicators and chart movements
correctly is very important.
There is a huge amount of information available easily these days
on this 24 hour market, but what needs to be taken into
consideration is the information which is relevant, to our trade.