The Top 3 Weaknesses of the Forex Market |
Posted: October 23, 2018 |
It’s true that the forex market is very flexible and cost-efficient. It’s also the biggest and the most liquid financial market in the world. Thousands of traders have already made money off of this very lucrative market. However, while there certainly is fortune to be found in the forex market, there are also a lot of risks to be taken into consideration. It is very important to know which things affect your chances of winning huge amounts of profits in this market. Read this article and arm yourself with the knowledge of the risks you should be wary about in the forex market FSMsmart Reviews. Counterparty RisksThe forex market is an international market. What that means is that the regulation of the forex market is quite tough issue to resolve because it touches the sovereignty of the currencies of many countries. This creates a condition in which the forex market is mostly unregulated. Thus, there is also no centralized exchange or governing body that guarantees a risk-free execution of trades. That means when you or other traders enter into trades, you also have to be extremely cognizant of the default risk that you are facing. This pertains to the risk that the counterparty may not have the intention or the capability to deliver the contracts or trades you have made. Forex trading, therefore, requires you to have a solid assessment of counterparty risks as well as plans to mitigate them Finance Brokerage Forex Brokers. Leverage RisksThe forex markets offer the highest leverage amount. Leverage, as well all know, can hit both ways. It automatically means risks and a gearing ratio of 20 to 30 times means as much risk as profits. And because there’s really no limit in the movement that could happen in this financial market in a given trading day, it is quite possible that a person or you may lose all of your investment in a matter of minutes if they you have placed a highly leveraged bet. Newbie investors and traders are more susceptible to making such mistakes since they don’t understand the amount of risk that leverage can bring along. Operational RisksForex trading operations are quite difficult to manage in terms of its technicalities and bolts and nuts. The reason behind this is because the forex market works all the time even when half the world is already asleep. Therefore, traders are compelled to seek the help of algorithms in order to protect the value of their investments when they are away. Alternatively, multinational firms have trading desks that are spread all across the globe. On the other hand, this can only be accomplished if the trading transaction is done on a very large scale. Therefore, if you or another trader does not have the adequate amount of capital or the knowledge in terms of managing their positions when they are away or on the fly, the foreign exchange market could take you by surprise and present you a huge loss in value over the night or on the weekends.
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