It’s estimated that 90% of beginner Forex traders eventually end up losing more money than they make. Compared with the rate of success of traditional start up businesses this number is not that different (less than 15% of start-ups succeed). Then why is Forex trading considered risky?
Forex trading is quickly gaining ground as one of the most popular ways to earn money from home and it is without doubt a very lucrative business. However few traders are familiar with all the details and complications of currency Trading and most ignore a very important aspect: risk. Forex gives you a chance to invest your money successfully, but that is not enough! You have to be careful because Forex trading can be both an profitable home business or it can be a source of a major headache.
What are the inherent risks of Currency trading, which if known will easier be avoided by beginner traders?
– First of all, every investment bears risk. Its written in the fine print of CFTC every document, of every brochure of every financial institution managing people’s investments, including mutual fund companies, credit unions, major commercial banks, etc.
– The currency market in general is actually quite stable. Compared to the stock market the Forex market is way more stable. Also there is no insider trading and the news come out at times which are known in advance. However the volumes traded on the Forex market makes even the smallest change in the rates seem significant.
– Fluctuations in currency prices, discrepancies in interest rate differentials between two different countries, large volume transactions and limited flow of exotic currencies will have an effect on the market.
– Large profits and minimal losses are impossible to predict with 100% certainty.
– The Forex trading market has great winning potential, but it also has a potential for losses.
– Poor money management (no Stop Loss orders or “Mental Stop Loss” ) and emotional baggage are most of the time a cause of loss. Use rules, not hope or fear, when trading.
– Huge leverage is provided to traders. If not managed properly, this leads to dangerous positions that expose the account to unjustified risk .
– Lack of money management or no general trading plan are the mistakes that currency traders make sometimes.
– Choosing an unreliable or dishonest broker can lead to problems as they can widen spreads during volatile market conditions affecting the retail trader. They can even refuse to trade sometimes. Choosing a reliable broker is essential to your success.
– Scams were very common years ago when dealing with a broker. However, one can be confident in company one is working with by checking their background and the Institutions they are associated with (large banks, important insurance companies).
Don’t be discouraged! Forex isn’t all about risks. And have this in mind: If Currency trading were not profitable then why are so many financial investors, banks, international institutions and important players would be involved in it, obtaining huge amounts of cash by simply turning their money into other currencies?
All Currency traders have to be very well informed about their activity. They have to follow the economic announcements, know technical analysis and how to read and interpret charts, they have to develop effective strategies and minimize risk. The financial exposure has to be limited and this can be done in many ways.
So, spend some time to educate yourself on the topic of Forex trading. Think of the rewards Forex trading brings and you will realize that this will be a time well spent and definitely – worth it! Be prudent, never risk more than you can afford and always trade with a Stop Loss.
— Would you like to learn how YOU can become a successful Forex trader?
Read more here http://www.fxsoftwaresolutions.com
Alan Bentler is a trading veteran and an Editor at www.fxsoftwaresolutions.com