The Risks of Online Forex

The Risks of Online Forex

When you make an investment you open yourself up to a certain amount of risk.  While some investments have a lower risk than others the fact is that they will all have some sort of risk.  When you trade online forex you will face a number of risks that you need to know about.  These risks are some of the reasons why people avoid trading on the forex market.  These people believe that the rewards of trading do not justify the risks.  This is something everyone must decide, but it is best to do this with some knowledge of what the risks are.

Online Forex Scams

When trading forex you will need to work through a brokerage company.  There are hundreds of these companies on the internet all stating that they are the best to help you achieve your trading goals.  These claims should be taken with a pinch of salt as there are many fraudulent and scam companies.  Before you agree to work with any brokerage company you should verify their information and credentials.  Reliable and reputable companies will work with large financial institutes and should be members of a governing body.

There are No Guarantees

The forex market is constantly changing due to the fluctuations in currency value.  While it is possible to analyse and predict possible trends nothing is guaranteed as there are too many variables in play.  An unexpected news event can cause the market to swing against you and this will lead to large losses which you may not be able to recover from.

There are no 100% Safe Systems

Regardless of the system you are using it is impossible for it to be completely safe.  When using an online platform it is possible for the system to freeze or crash which can cause havoc with orders.  System failures can cause orders to fail and result in loss of income or a change in the market could occur during the downtime which swings the market against you.  If you are working through a broker and not through the internet you may not be able to contact the broker in time to trade.  You also have to take into account that a broker is only human and may not be able to complete your trade for you in time.

Highly Volatile Market

The forex market is one of the most volatile markets in the world and can be affected by a number of different political and economic events.  This brings certain risks which cannot be controlled or planned for.  These risks will include interest rate risks, credit risks, country and exchange rate risks.  Each of these risks is based on a different aspect of the political and economic behaviour of a country.

The interest rate risk is based on the difference between interest rates of the currency pair you are trading.  Credit risk is based on the possibility that one side of a trade will not honour the transaction.  Many people lose large amount through this as this is the kind of risk associated with banks going bankrupt.  Country risks are the possibility that a country will limit the currency flow.  Exchange rate risk is the fluctuation of the exchange rate during a single trading period.

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