While FX trading is risky, it’s really not that much riskier than leveraged trading in the stock or futures markets. For example, all 3 investment venues have the potential for you to lose all your capital, but only in forex do you have stop losses that continue to exist after 24 hours. In addition, unlike the stock or futures markets of the world, trading in forex just continues to follow the sun, blithely ignoring national boundaries, providing you with the opportunity of changing your trading position at midnight, if that’s want you really want to do. In point of fact, most of all forex horror stories derive from 2 mistakes that almost all newbies make. First, they use too much leverage with the wrong currency pair. Second, they forget (or don’t even know how) to set a stop loss.
Using a “demo account” before you start “live” trading can make all the difference in the world. Perfecting your trading strategies with a “demo” can save you a lot of money.
FX Trading Can Be Risky At The Best Of Times
FX trading can be full of risks, particularly if you’ve not taken the time to research what you want to do and how. This is because, as a capital market, forex is the world’s largest. It also spans the globe and doesn’t stop at a certain time every afternoon. In addition, most forex accounts have leverage ratios far higher than you’ve experienced in any other financial investment field, allowing losing trades to deep six at speeds far faster than you have ever seen before. So, you have got to understand what’s going on first and then, practise on a demo account until you have mastered the art of bagging a profit without losing too much skin in the process.
What Makes FX Trading Such A Risk?
In FX trading, there are 3 kinds of risk. First, there is “structural risk”. This is the risk that you have not correctly structured your FX trading position. For example, you decide to trade a highly volatile currency pair using a high leverage ratio (when that’s the last thing you should have allowed to happen). Then, there’s “market risk”. Here, ignorance usually leads the way. For example, the time period before Auckland opens is highly illiquid, but you didn’t know that, and so, you launch your trade and get a horrible trade execution. Finally, there’s “event risk”. Not reading the global calendar will result in you getting bushwhacked by the news. A trade with no stop losses usually doesn’t survive such an event.
Methods For Controlling FX Trading Risks
Work with a demo to get rid of the potential of incurring a structural risk. Record all your trades. Go back and look at the ones where you didn’t make much of a profit (or you made a loss). Figure out what happened and decide how to stop it from occurring again in the future. While that’s going on, read the news – all the time. Reuters and Bloomberg are excellent resources. Use them. In addition, at the beginning of every trading week, go over the global economic calendar that is part of your trading platform. Look for the “big events” which could turn everything upside down. Try not to be in an open trade when they’re scheduled to occur.