The CFD market in one of the biggest trading market and it is growing with time. People are taking an interest and according to the report of April 2019 almost $6.6 trillion transactions are made per day in the Forex market. But as we said it is the riskiest market because only 4% of traders can make money from it. So you may understand how risky this market is that 96% of traders don’t ever get a chance to have a hand on money. But in these 96% traders, most of them do not join this market with total knowledge about it and consider trading as gambling and as a result, they lose their money eventually. From this article, you will find out the main risks of Forex trading so that you might be aware of that.
Uncontrollable market risk
Forex is directly related to real money so if you make any bad decision then you will lose money instantly. Forex market’s movement depends on lots of variables and because of that you cannot even think of controlling this market or even making 100% sure prediction is near to impossible. Market risk is related to everything that is controlling the currency pair in which you are thinking to make trade. This market is very volatile and the volatile level become higher whenever any financial news comes out and in this period market can show you such type of movements that you cannot even imagine. But higher volatility is not a bad thing, because if the market’s movement is very slow and low then you cannot many profits from your trades. So volatility is good if you can use it in your favor and as the risk is uncontrollable this is why the Forex market is so interesting once you have to grab its movements.
Most of the time the liquidity in the Forex market is very high and this is why you can place buy or sell anytime you want. Because whenever you are trying to buy any position then there will be someone willing to sell that position. But there are times when liquidity is very low and it usually happens during weekends, outside of European and American trading season. This is the time when the transaction cost becomes higher which can be seen by the spread. The difference between buying and selling price is called spread and it can be considered as a commission that your broker takes from you for making each trade. So you have to look at the spread before opening a position and if you don’t like that then you find a broker that will provide you fixed spread all the time. Chose brokers like Saxo markets so that you don’t have worry about liquidity risk factors.
Leverage is one of the biggest advantages and also the biggest disadvantage of this Forex market. Leverage gives you the power of trading with a small capital and you can trade with any lot size you want with this. But when you are using an account with leverage then you might not earn as much as you are seeing in your trading platform and because of that traders in Australia often becomes biased or earning more and as a result, they make riskier decisions. It mainly amplifies few problems like if you are not using any stop loss than any large loss can happen which will heart your account balance badly because leverage going to amplify that loss. We always suggest that though leverage is always available for use you should avoid it if you can. Join the CFD market only when you have enough money so that you don’t need to use leverage.
In my point of view to become successful in Forex trading, one must need to use all the risks of this market in his favor with proper risk management. So if you are a trader firstly focus on making proper risk management rules so that you don’t need to be afraid of these market risks.