In the world of forex trading, it is easy to get wrapped up in the excitement and novelty of a perfectly-timed trade that you forget about all of the factors that could be potentially dangerous. Forex brokers are sometimes accused of overcharging traders on spreads and triggering stop-loss orders without warning.
A quick search online will yield countless forums filled with complaints from angry customers who had their trades executed at a worse price than what was quoted as they watched their account balance dwindle as if they had been shot out of a cannon from another broker making off with the contents of their wallet.
As with all financial markets, there are risks associated with trading currencies at your fingertips, but knowing these risks and doing proper research can help keep your losses minimal and profits high.
Main Risk #1: Currency prices are constantly changing
The first risk of forex trading is that currency prices are continually shifting, which means you cannot take for granted that the price you see quoted on your broker’s platform will still be there when you go to trade it.
A lot of brokers offer simultaneous execution where multiple trades can be entered and executed at the same time with no delay in between them, so if you were to place a large order, it would be completed in smaller chunks over time, keeping your average entry price consistent.
That strategy works well in times of calm market activity. Still, when news comes out or rumors start to circulate, traders start buying and selling like mad, potentially triggering stop orders once they reach critical mass. It is best to keep your orders small and never rely on stop-loss orders because you cannot predict when the market will see a heavy round of buys or sells.
Main Risk #2: Currency prices are constantly changing
Volatility is the degree of variation of a trading instrument’s price over time. A forex trader has one main job, buy low sell high, which sounds simple enough until you factor in that currency prices are never stagnant.
Most currencies experience at least some amount of volatility. Still, elections, natural disasters, and political scandals can cause even the most stable currency pairs to shift wildly out of control. This makes it much harder for traders with smaller accounts to make the best of the situation because these events usually only occur when traders are asleep, after work hours, or on weekends.
This is why it is crucial never to risk more than you can afford to lose, always plan your trades ahead of time, even put them in a diary for future reference and never chase trades. The market will always be there tomorrow for you, but if you get greedy and start doubling up to make back what you lost, you’ll be more profound in the hole than before.
Main Risk #3: Currency values are constantly changing; do not trust online calculators
Forex trading online comes with its own unique set of challenges that traders must learn how to navigate around, including calculators that rely on outdated information, which causes them to spit out inaccurate results.
In summary
There are three primary risks associated with forex trading that one must be aware of before making any moves. The first is constant change in currency prices, the second is volatility, and brokers offer inaccurate calculators. You must do your due diligence when trading forex because it carries a much greater risk than stock trading but can yield much larger returns if done right. New traders are advised to use a reputable online broker from Saxo Bank and trade on a demo account before investing real money; see more information.
