Making money online looks easy at first glance. But actually, it is not. In Forex trading, you have seen all those ads with ‘Forex traders’ enjoying the best times of their lives, holding lots of money, and owning expensive cars and jewelry. But this isn’t always the case especially if the odds go against you.
What is Forex Trading?
Forex trading is the trade of foreign currency pairs. This is not a child’s game and also not for the faint of heart. One important piece of information that you need to know about it is that there is no centralized market that can facilitate the trades that are happening here, unlike the stock exchanges. Another risk in Forex trading that you need to know is that it goes way beyond a company or even the performance of the entire industry. But you shouldn’t lose hope just because you heard the bad side of trading. Understanding the risks lets you trade conservatively and effectively. Using a reputable trading platform such as the MetaTrader 5 will greatly help with your trading career.
When trading, you can either go ‘long’ in one currency and go ‘short’ on the other. By saying that, you can earn a profit when the price goes up (long) and also earn when the price falls (short).
Risks Involved in Forex Trading
In Forex, traders tend to utilize the currency of a certain country to buy the currency of the other country. What affects your gains or loss is the relative value of the currency that you purchased. When buying and selling currencies through foreign exchanges, you get to bet on the different currencies of different countries. But these currencies might go against each other. The same goes for if you buy a currency and the value gets increased against its pair, you then get some profit. If the value of the currency goes down, then you will shoulder the losses.
Country Risk
There are two categories of country risks – the instability of the country and when the nation intentionally decreases the value of your currency. The first risk occurs when a certain event happens and investors start to move out of their investment. The second risk, the devaluation risk, appears as a monetary policy of a country in which the value of the currency decreases.
Margin Risk
Margin trading allows you to borrow some money from your brokerage company. This money should cover your trading expenses. This might be good for you especially if you don’t have a lot of budgets. But this advantage could also go south if your trades go out of hand. You will be required to pay in cash the original investment that you have.
Tips To Avoid Incurring Too Many Risks in Trading
Generally, you need to find a reliable forex trading platform that can carry out your trades even when you are away from your computer. When it comes to reliability and ease of access, MetaTrader 5 is the best option to take. Make sure that your dealer offers this trading platform or you will be at a loss in the financial market.
