Monday, November 23

Risky Business: The Dangers of Forex & CFD Trading

Ever wondered why most people would get into trading in Forex and CFDs? A lot of them would get into this form of trading given that it is most accessible and would only require a certain amount of capital as compared to other forms of trading. Not only is accessibility measured in the form of digits in your bank account, but also the fact that in this day and age, you are able to virtually engage in this form of trading anywhere and everywhere. All you have to do is get yourself a computer or smartphone and stable internet, and you are ready to run your investments in the market. But of course, just because accessibility seems to be at the most advantage does not mean there aren’t any dangers when it comes to trading Forex and CFDs. Here are four points where most dangers appear when trading and hopefully you can take note of them as you go through your daily transactions.

The market is uncontrollable

With the market being uncontrollable, you situate yourself in what other traders call a systematic risk. This is an overarching risk that affects the whole market. For the most part, a lot of veteran traders would consider this as something they can utilize as the risk affects all of the indices, cryptocurrency, oils and other aspects you are trading as this is the element that moves prices either up or down. As these prices move around, you are able to determine which to buy or sell as you move through the different developments of the market volatility. The volatility in itself is a cause for you to transact very profitable trades but at the same time can be the very reason you lose. .

Leverages

Most employees One of the biggest advantages and risks of Forex trading is leverage. This is the aspect of trading where it increases the chances of gains for your trades. However, engaging in Forex and CFD trading and not being able to control your market risk by using stop-loss orders will engage you in large losses. Because of the function of your position based on your spread, your trading costs will increase due mainly to the leverage. Some traders would go even as far as signing up to a foreign broker that may or may not have regulation in their area and would definitely increase the purpose of your trades. Reminder to most traders, regardless of your experience: Just because an option is available for you to get into a “bigger possible payout” does not mean you have to take it.

Staying Liquid

Since the market will have lots of buyers and sellers, it will cause it to become liquid and you as a trader will have a swift and easy process in opening or closing your trades based on the position you perceive you would benefit. However, just because the market would give any trader the impression for it to be financially liquid, it will still have its moments where liquidity becomes very low. This is either caused by certain holidays, trading sessions or long weekends.

By taking note of these situations, you will have to consider these certain events as part of your trading plan given that your cost for trading during these days will most likely increase.

However, not all things can be projected. Some circumstances can be caused by your broker for their services and securing liquidity can be also considered through transacting with a broker that can offer you fixed spreads. This is preferred for traders who engage in a very aggressive methodology when it comes to trading.

Counterparty

What is Counterparty? It is an outfit where you are able to engage in closing or opening your trades. This is usually known as your broker. So what is the risk? There is always the danger of not being paid by your broker as per your agreements when signing up with their service. Some causes can be poor regulation within their system, possible bankruptcy or just being able to sign up to a fly by night broker disappeared. Being able to tell which broker is actually trustworthy is a bit difficult but looking through online reviews and comments from other users to be able to detect the legitimate brokers from the unreliable ones.

Leave a Reply

Your email address will not be published. Required fields are marked *