Some forex trading risks that prospective traders should know

Risk of Forex Trading - In the world of investment, you cannot escape from risk. The applicable law is the greater the potential profit, the greater the potential risk.

Similarly in forex trading. Forex is a type of investment with the highest risk. This has been mentioned in many sources.

The potential of forex profits is higher than deposits, shares, or mutual funds; but even greater risk of forex trading. According to the results of several studies, including those conducted by AMF France, 90% of traders end up losing.

Or it could be likened to only 1 person who succeeded, from 10 people who jumped into forex trading. Scary isn't it?

Yes, this is a fact, like it or not, like it or not, we, you, must understand and correctly interpret the statistical information above.

However, even though the probability of winning in forex is low and not easy, it does not mean it is impossible. There are many people who have been successful in forex, and we can follow in their footsteps.

One way to understand the risks of forex trading before plunging into it.

Generally, the risk of forex trading comes from four things, namely the price volatility in the forex market, the use of leverage, forex brokers, and our own psychological conditions as traders.

Risk #1 : Leverage

Forex trading utilizes the Margin Trading system. Margin Trading is a system where trading is possible only using collateral (margin = guarantee).

Brokers will offer."leverage" to increase margin funds into larger trading funds. By using this system, traders have the potential to get big profits even if only with small capital. How come? Let's look at the following example.

Such as the price of GBP/USD pair: 1.6000, capital 100,000 Pound, with a daily movement of 100-200 pips. So an example of calculating profits when profit is (1.6200 - 1.6000) * 100,000 pounds = 2000 pounds.

That's if trading without leverage. What if using a margin system, or by using leverage? With a margin system, you can trade only by providing a small portion of the capital needed.

Suppose the broker receives a margin of 1% (Leverage 1: 100), then in the example above, you will be able to trade with only a capital of 1% x 100,000 pounds = 1000 pounds only, and with the potential profits to remain the same, which is up to 2000 pounds.

Together with the potential benefits, there is also a potential loss because forex with a similar amount. That is, with a capital of 100 pounds; there can be a potential profit or loss of 200 pounds per day. So, your capital can disappear in just days, even hours or minutes.

In other words, Leverage facilities can help small capital traders to profit, but also open the possibility of loss greater than capital.

Therefore, you need to be careful not to choose too high leverage, to keep the risk of forex trading low.

Risk #2 : Volatility

Advantages in forex trading can be obtained because the exchange rate between currencies (prices) changes constantly almost every time.

The magnitude of the up and down the prices is called Volatility. Currency pairs with low volatility will be difficult to trade.

Conversely, the greater the price volatility of a currency pair, the greater the profit traders can get from it. However, at the same time, the risk of forex trading in the currency is also getting bigger, because the possibility of loss also increases.

Volatility variations in prices on the forex market can be seen in the table below.

Price volatility in the daily, weekly and monthly periods of each currency pair varies. The biggest volatility is in XAU/USD (gold vs. US Dollar), while the lowest is in EUR/CHF (Euro vs. Swiss Franc).

From this data, it can be concluded:

It will be difficult to benefit from daily trading in the EUR/CHF pair, because low volatility means that the movement is almost stagnant. It will be difficult to benefit from daily trading in the EUR/CHF pair, because low volatility means that the movement is almost stagnant.

The extremely high XAU/USD volatility made him liked by many traders. However, traders who choose lower forex trading risk will lean towards currency pairs with moderate volatility, such as GBP/USD, AUD/USD, and EUR/USD.

You are also free to choose the currency to be traded in accordance with the amount of risk that you dare to bear.

Risk #3 : Personal Trader

A trader can start trading in just days or even hours if you want. In fact, to be successful as a trader, we need to learn forex trading first. Getting too fast is tantamount to suicide; we can be sure the funds (capital) will expire.

If we only put in a little money, then lose money, then it can be an effective learning material. But what if it turns out that the funds are included in a very large amount?

Of course it feels very painful. Forex is a high risk investment model.

Ignorance will make forex trading risk bigger. Conversely, the deeper the knowledge, the more psychologically trained we face the market, it will produce more promising benefits.

Risk #4 : Forex Brokers

Another thing that increases risk is: the ease of a trader to be able to start forex trading quickly and almost instantaneously. Yes, bro pampers new traders (beginners) with the ease of depositing funds, even plus bonuses, free trading capital, and so on.

In this case, the trader needs to pay attention that the forex broker is a business company that certainly wants to make a profit. They will not hold a big promotion without expecting even greater profits. So, when going to use broker bonuses and promotions, pay attention to the rules.

For example there is a broker offering bonus but cannot be withdrawn at all. So, if you register in the hope of getting free money, then you will definitely be disappointed.

The purpose of the broker providing these bonuses are that you try their trading service, then make a deposit if it is suitable.

In addition, you also need to be careful if you find a bonus that is fantastic in size, but the terms and rules for claiming it are unclear.

Indeed, there is a real bonus in the context of promotion to raise the name of the broker, but there are also misleading bonuses.

If the amount is not reasonable, it is necessary to be careful so that later it does not turn around. Also make sure that when you trade, choose a broker that has been officially regulated so that the future is safer.

Therefore, be patient and do not rush to jump into the world of forex trading. Don't be tempted by the promises of spectacular profit and income.

Indeed, the promise of large profits will be the motivation of forex trading which is very interesting, but if it is not balanced by the right information and training, it is like "A blind person who is passionate about running towards a cliff."

Before embedding years of savings in forex trading, you can practice on a forex demo account to improve your skills first.