Avoid losses in forex trading by understanding these risks

Margin Call forex trade
Margin Call, one thing traders hate

In the world of investing, you cannot escape risk. Yes, this risk thing certain to exist, according to applicable law is the greater the potential for profit, the greater the potential risk. Likewise, in forex trading.

Forex is an investment with the highest risk where this mentioned in many sources both in the mass media or on sites are on the internet.

The forex profits potential is higher than deposits, stocks, or mutual funds; but that also means greater risk from forex trading.

According to the results of several studies, including those conducted by AMF France, 90% of traders will eventually suffer losses.
From this statement, I can liken it to only 1 person who succeeded, out of 10 people who jumped into forex trading. Scary isn't it?

Yes, this is a fact, whether you agree, understand and interpret and it's good to always remember the statement so that later it is not "reckless" in opening trading positions.

However, even though the probability of winning in forex is low and difficult, it does not mean it is not impossible. Many people have succeeded in forex, and hopefully, you and I can follow in their footsteps. Amen.

How to understand the risks of forex trading before plunging into it is very necessary so that later traders will not fall prey to direct transactions with the formula get rich quick. That is if a trader holds the formula for getting rich quick it can mean getting poor quickly.

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

Risk of Leverage

Forex trading uses a Margin Trading system, where Margin Trading is a trading system that uses collateral. Margins mean Guarantee that you give to the broker to open your position.

Brokers will offer what we call "leverage" to increase your funds so you can make transactions that are bigger and more potentially big profits.

By using this system, traders might get big profits even if only with small capital. How can? Let's look at the following illustration example:

For example, the price of the pair GBP / USD: 1.6000, with a capital of 100,000 pounds, and with daily movements of 100-200 pips. So the example of calculating profits is (1.6200 - 1.6000) * 100,000 pounds = 2,000 pounds.

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

Suppose the broker receives a margin of 1% (Leverage 1: 100), then in the example above, you will trade with only capital 1% a 100,000 pounds = 1,000 pounds, you can get the same potential profit, which is up to 2,000 pounds.

Along with the potential benefits, there is also the potential for losses because of forex with the same amount. Namely, with a capital of 100 pounds; there may be a potential profit or loss of 200 pounds per day. So, we can lose your capital in just a few days, even hours or minutes.

The Leverage facility can help small capital traders to profit more, but also opens up the possibility of greater losses from the capital.

Therefore, you need to be careful not to choose leverage that is too high, to keep trading risk low. But there is nothing wrong if you use large leverage but use small lots.

Risk of Volatility

We can get an advantage in forex trading because the exchange rates between currencies change almost every time.

The magnitude of the rise and fall of currency prices called the value of Volatility. A currency pair 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 that currency pair.

However, the risk of foreign exchange trading in currencies is also greater, because the possibility of losses also increases.

We can see variations in price volatility in the forex market in the table below:

Forex volatility table
Forex volatility table (Daily, Weekly, and Monthly)

From the table above, which shows the price volatility in the daily, weekly and monthly periods of each currency pair varies. The biggest volatility is in XAU / USD (gold vs. US dollars), while the lowest is in EUR / CHF (Euro vs. Swiss Franc).

From this data, we can conclude it:

It would be difficult to enjoy daily trading in the EUR / CHF pair because low volatility means that the movement is almost stagnant. It would be difficult to enjoy daily trading in the EUR / CHF pair because low volatility means that the movement is almost stagnant.

The very high XAU / USD volatility makes it preferred by many traders. In fact, most groups and fellow traders will analyze in this Gold pair.

However, many traders who take a lower 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 trade according to the amount of risk you dare to bear.

Risk of Psychological as a Retail Trader

This risk is because of the personal trader himself, you could say this risk can arise for carelessness, disturbing psychology, poor management, etc.

A trader can start trading in just a few days or even hours. In fact, to be successful as a trader, we need to learn forex trading first. Too fast is the same as suicide; funds (capital) will run out if often wrong in trading.

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

It feels very painful. Forex is a high-risk investment model.

Ignorance will make the risk of forex trading even greater. Conversely, the deeper the knowledge we have, the more psychologically trained we are in dealing with the market, and that will produce more promising benefits.

Risk of Forex Brokers

Another thing that also increases risk is the ease of a trader to start forex trading quickly and almost instantly.

Why is it easy to trade can be a risk? Yes, because of the convenience of the trader easily shackled to deposit money to we can say the broker and trade to trade with high risk.

Here, traders need to pay attention that a forex broker is a business company that wants to make a profit. They will not hold large promotions without expecting greater profits. So, when going to use bonuses and promotions, pay attention to the rules.

For example, there is a bonus broker offer but can't withdraw at all. So, if you register to hope to get free money, then you will definitely disappointed.

The purpose of brokers to provide this bonus is for you to try their trading services, then make a deposit if it is appropriate.

Besides, you also need to be careful if you find a bonus that is fantastic, but the terms and conditions for claiming it are unclear.

There are real bonuses in promotions to increase brokerage names, but there are also misleading bonuses.

If the amount makes little sense, be careful not to turn around later. Also, make sure when you trade, choose a broker that has officially regulated so that the future of the money you deposit with the broker is safer.

Therefore, be patient and do not rush into the world of forex trading. Don't tempt by promises of spectacular profits and income.

The promise of big profits will be a motivation for very attractive traders, but if we do not balance it with the right information and training, it will be foolish and will regret later.

Before starting trading, it's good to learn first, and you can also practice on a forex demo account to improve skills without losing capital.

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