Forex trading can be a challenging undertaking and even the most experienced traders are not guaranteed to earn a profit. Prior to making the decision to trade Forex, we ask that you consider carefully your investment objectives, level of trading experience and your own tolerance for financial risk. It is never advised that one risk all of their funds and in fact, one should never risk more than they can afford to lose.
Any and all FX transactions carry a significant degree of risk. Price movements can be impacted by changes to the political environment, changes to a country’s economic system, and much more. Any factor that has the power to change the value of an asset can do so quickly and significantly. Such changes can lead to financial losses when trading within the currencies market.
Additionally, Forex exchange trading often involves the use of leverage, which in turn has the power to affect the funds that you have deposited with the broker or brokers of your choosing. The impact of leverage does remain within your control and will always be proportional to your personal choices and actions. In other words, leverage may work against you, but could also work to your advantage.
It is possible to sustain a complete loss of your initial deposit, and a margin call may be required in order to maintain your position. Should a margin call not be established within the specified timeframe, your trade will be closed, and any losses will be taken at your own risk. Various strategies such as hedging strategies may be used to reduce risks, such as “STOP” or “Limited” orders.
The Forex market is the largest and most liquid in the world. The value of a currency at any given time is directly linked to the macroeconomic strength of its associated country. Changes to the economic system are easily viewed as price trends of the associated currency and as such, many view the Forex market as an attractive option for profiting from these types of price movements.
It is important to remember that even the most successful of traders will be limited by a variety of factors and that many do have an unrealistic expectation of the true potential for profiting. In addition, many individuals do begin to trade the FX markets whilst lacking the principles required to be a competent trader. The fact is that short-term trading is not a suitable endeavor for amateur investors and there is no shortcut to becoming wealthy.
The foreign exchange market is comprised of its own unique set of characteristics and any familiarity and experience that one has with the foreign exchange market will not directly correlate with that of standard (traditional) markets. It is never wise to disregard basic financial rules and logical judgments.
Investors should not assume that by assuming a higher level of risk they will be able to obtain a high yield profit. This type of assumption may lead to unstable trading performance, with the investor being subjected to substantial losses. Currency trading is not and has never been simple. Even traders with many years of previous experience still often encounter financial losses. It is important to understand that it takes time to learn how to trade Forex extremely well and that there are no shortcuts.
The most appealing feature for Forex trading is the use of high levels of leverage. The expectation of taking a small amount of money and generating substantial profit in a short period of time via the use leverage can be quite appealing. However, leverage must be viewed as a potential increase in financial exposure and risk.
Most who make the decision to trade within the foreign exchange market will undertake the tasks of technical and fundamental analysis and then use his or her findings to place their trades. When leverage is used to make those trades, the position size could be too large and thus exceed the capacity of its portfolio. The outcome of this situation will typically be that the trader is forced to close the trade and exit the market at an unsuitable time. When trading Forex, a gradual increase in trade volume combined with the use of stop loss orders as protection will increase your odds of being successful.
Third-Party Trading Platforms
Often, the trading platform that is provided by a broker is owned and operated by an outside party. This means that your broker may not be able to fully control or make changes to the platform. Those who are trade on such platforms will be taking on systemic risks, including, but not limited to, issues directly resulting from communications infrastructure and/or the electronic trading systems which are linked to it.
When system failures or other interruptions do occur, trades may not be in accordance with your specific instructions, the system may be unable to execute said order. In addition, a system failure or other interruption could render you unable to modify existing orders or view your current trading positions and/or market data.
As most electronic trading platforms are provided by third-party vendors, under the premise of that no legal precedent exists, the broker may not be held liable for any losses or damage incurred as a direct result of the use, operation or performance of the electronic trading platform.