Forex Trading Risks
In the world of investment certainly, can not be separated from the risk. The applicable law is the greater the potential profit, the greater the potential risk. Yes, 'risk and reward' is directly proportional. Or maybe the phrase we often hear is 'High-Risk High Gain' and the opposite is 'No Risk No Gain'.
What about forex? Forex belongs to the type of investment with the highest risk. This has been mentioned in many sources. Compared to deposits, stocks, or mutual funds, the potential forex profit is higher, as well as the risk of forex trading.
According to the results of several studies, including those conducted by the French AMF forex regulator, 90% of traders end up with the loss. Or it could be likened only 1 person who succeeded, from 10 people who plunge into forex trading. Horrified is not it? Yes, this is the fact, inevitably, like it or not, we, you, must understand and correctly interpret the above statistical information. So it can be concluded that first, forex trading is from its probability to win low; Second, forex trading is not easy; And thirdly, we need to understand the risk of forex trading before plunging into it.
Generally, forex trading risk comes from four things: Volatility, Leverage, Forex Broker, and Personal Trader.
Forex Trading Risk 1: VolatilityGains in forex trading can be obtained because exchange rates between currencies (prices) change constantly almost every time. The magnitude of the rise and fall of prices is called Volatility.
Currencies with low volatility will be difficult to trade. Conversely, the greater the price volatility of a currency, the greater the profit that traders can get from it. However, at the same time, the risk of forex trading on the currency is also getting bigger, because the possibility of loss come increased.
According to the results of several studies, including those conducted by the French AMF forex regulator, 90% of traders end up with the loss. Or it could be likened only 1 person who succeeded, from 10 people who plunge into forex trading. Horrified is not it? Yes, this is the fact, inevitably, like it or not, we, you, must understand and correctly interpret the above statistical information. So it can be concluded that first, forex trading is from its probability to win low; Second, forex trading is not easy; And thirdly, we need to understand the risk of forex trading before plunging into it.
Generally, forex trading risk comes from four things: Volatility, Leverage, Forex Broker, and Personal Trader.
Forex Trading Risk 1: VolatilityGains in forex trading can be obtained because exchange rates between currencies (prices) change constantly almost every time. The magnitude of the rise and fall of prices is called Volatility.
Currencies with low volatility will be difficult to trade. Conversely, the greater the price volatility of a currency, the greater the profit that traders can get from it. However, at the same time, the risk of forex trading on the currency is also getting bigger, because the possibility of loss come increased.
Forex Trading Risk 2: LeverageForex trading utilizes Margin Trading system. Margin Trading is a system where trading is possible only by guarantee only (margin = guarantee). Brokers will offer "leverage" to increase margin funds into larger trading funds.
By using this system traders have the potential to earn big profits even with small capital. How come? Let's look at the following example. Such price pair GBP / USD: 1.6000, capital 100.000 Pound, with the movement per day 100-200 pips. Then the example of profit when profit calculation is (1.6200-1.6000) X 100,000 pounds = 2000 pounds. That is if trading without leverage.
How about using a margin system, or by using leverage?
With a margin system, you can trade only with a portion of the required capital. Suppose the broker receives a 1% margin (leverage 1: 100) than in the above example you will be able to trade only with capital 1% x 100,000 pounds = 1000 pounds only, and with the potential profit remains the same is up to 2000 pounds.
That is, with a capital of 100 pounds there could be a potential profit or loss of 200 pounds per day. So your capital can disappear in just a matter of days, even hours, or minutes. In other words, Leverage facilities can help a small capital trader for profit, but also open up the possibility of loss greater than capital.
Still, has something to do with this Margin Trading system. With the margin system, then we can trade with only a small capital. In practice, small capital precisely in many cases resulted in traders suffering defeat.
By using this system traders have the potential to earn big profits even with small capital. How come? Let's look at the following example. Such price pair GBP / USD: 1.6000, capital 100.000 Pound, with the movement per day 100-200 pips. Then the example of profit when profit calculation is (1.6200-1.6000) X 100,000 pounds = 2000 pounds. That is if trading without leverage.
How about using a margin system, or by using leverage?
With a margin system, you can trade only with a portion of the required capital. Suppose the broker receives a 1% margin (leverage 1: 100) than in the above example you will be able to trade only with capital 1% x 100,000 pounds = 1000 pounds only, and with the potential profit remains the same is up to 2000 pounds.
That is, with a capital of 100 pounds there could be a potential profit or loss of 200 pounds per day. So your capital can disappear in just a matter of days, even hours, or minutes. In other words, Leverage facilities can help a small capital trader for profit, but also open up the possibility of loss greater than capital.
Still, has something to do with this Margin Trading system. With the margin system, then we can trade with only a small capital. In practice, small capital precisely in many cases resulted in traders suffering defeat.
Forex Trading Risk 3: Forex BrokersAnother thing that increases the risk is: the convenience of a trader to be able to start trading forex quickly and almost instant. Yes, currently brokers are spoiling new traders (beginners) with the ease of deposit funds, even plus bonuses and so forth.
In this case, traders need to consider that forex broker is a business company that would want to get a profit. They will not hold massive promotions without expecting even greater profits. So, when going to use broker bonuses and promotions, pay attention to the rules. Indeed there is a genuine bonus in the promotion of raising the name of the broker, but there are also misleading bonuses. If the magnitude is not reasonable, it is necessary to be careful that will not turn to ensnare.
In this case, traders need to consider that forex broker is a business company that would want to get a profit. They will not hold massive promotions without expecting even greater profits. So, when going to use broker bonuses and promotions, pay attention to the rules. Indeed there is a genuine bonus in the promotion of raising the name of the broker, but there are also misleading bonuses. If the magnitude is not reasonable, it is necessary to be careful that will not turn to ensnare.
Forex Trading Risk 4: Personal Trader
A trader can start trading in just a matter of days even hours if you want. In fact, the world of forex is the world where traders must really understand and require learning. Too soon enter the same as suicide, can be sure funds/capital will be forfeited. In a condition where we only put a little money, it can be a very effective learning material. But what if it turns out the funds put in a very large amount? Of course very painful.
Forex is a high-risk investment model. Ignorance will make the risk factor enlarge, on the contrary, the deeper the knowledge, will make the profit more promising.
Therefore, be patient and do not rush to jump into the world of forex trading. Do not be tempted by the spectacular promises of profit and income. Indeed this would be a powerful trigger or driving force, but if not matched by the right information, it is like a blind man whose spirit runs toward the abyss.