When we operate in Forex we run risks when making investments, as in any other market we run the risk of losing the capital that is invested in the operations due to the volatility and instability of the values, since these constantly change and can be altered in a matter of seconds, minutes or hours.
It is not a secret to know that every investment that is made carries the risk of not getting profits or profits from the money that was budgeted to make it so if you do not know the risks to make investments in Forex it is advisable not to get involved in this market.
Trading in stocks, stock indices, commodities, commodities, futures, energy, metals and any other financial instrument may result in total or substantial losses of funds of the capital invested for such reason you should read carefully the terms and any other regulations that comprise risks and losses related to any type of transaction that is made.
Contenidos del post:
- A trader should know that any loss is entirely his responsibility
- Forex trading is entirely the responsibility of the client
- High Volatility Problem for Forex Decision Making
- Forex is an unregulated market
- Risk related to misuse of leverage
- How do I know if the strategy used reduces the risk of Forex trading?
- Avoid mistakes when managing investment risk
- Don’t let your emotions make you act impulsively when investing as this can increase the risk
A trader should know that any loss is entirely his responsibility
Many Brokers now protect accounts against negative balances so that the investor does not owe any amount of money to the Broker. However, the fact that an account cannot have a negative balance does not mean that the investor cannot lose money until it reaches zero, even if stop-loss or stop-limit orders are placed, this would not limit the losses depending on the operation that is being carried out and the Broker that has been chosen to make it, even the investor could be notified to deposit the missing funds to carry out the investment and in such a case that this is not achieved in the stipulated time the position would become liquidated and closed, in such a way the trader must have full certainty of knowing that any accumulated deficit that he may have remains entirely under his absolute total or partial responsibility.
When trading in a market that is global and is handled in multiple types of currencies and financial instruments, foreign exchange trading all the time will carry a high level of risk that is directly associated with the balance in the account at the time of trading. When choosing leverage to carry out operations, a wise choice must be made because it may be in favor or against the trader, depending on the circumstances in which the trader finds himself.
I personally recommend the demo account that eToro offers because it allows us to copy to other investors and obtain liquid profits of up to 20% for each person that is copied, the time when some or all of the money invested may be lost will be present at all times during trades that are being made, including copying to other traders through eToro – there may be losses depending on the decisions made by the people being copied.
Starting Forex trading by copying to third parties is a good beginning to start understanding the market. However, you must be in a constant check every day to know if you are making profits or losing investments, eToro is the only Broker that allows you to copy other traders but there are also others that offer free accounts that teach you to make trades in real time without having to copy to third parties and for this you must seriously plan the objectives and determine the levels of risk that you have in each of the trades that are made. The risk will be present at all times so it is not superfluous to seek the advice of a professional to guide you in your first steps in case you are a novice trader.
Forex trading is entirely the responsibility of the client
When an investor trades through a Forex Broker all responsibility for the trades that are made will fall on the client, so you will be responsible for the balances that are kept and to be aware of any trade even if the trades are in automatic, most losses occur in trades that are in automatic and are forgotten for several days by traders, who are confident that they made the right decisions when investing, for this reason it is advisable to carefully consider whether the operation to be made will have its own power or will need the help of a third party for a certain period of time not to make mistakes.
Certainly automating the operations offers a wide benefit since you have more time to carry out other activities but you must take care of the balances and the investments that are being made with the account, in other words it is important never to neglect a operation that is being carried out because it can end in a total or partial loss depending on what has been taken into account to be carried out.
High Volatility Problem for Forex Decision Making
When thinking about making or making an investment in Forex one of the main factors when making a decision is the volatility that exists with respect to currency pairs or any other financial instrument such as stocks, commodities, commodities, etc. When making the relevant calculations to make a trade it is not fully certain that the results are the same as those estimated in the calculations that were made, even if you make use of the Metatrader 4 platform or any other platform to trade Forex you run the risk by the volatility of the securities to gain or lose part or all of the capital invested.
In the case of currency pairs there are some that have a high volatility and others that have a low volatility the behavior will depend on the movements that are occurring at the time or any event that is occurring in the market, part of these events can be estimated by making calculations using a little complex formulas or making use of the MT4 platform to perform trades but what is essential is to have clear the characteristics of the pair with which you are going to trade.
Although volatility can go against traders, it can also be exploited because there are times when it is possible to be absolutely certain by calculating that a value of a certain thing will go up or down in a certain period of time, However, the most common way to calculate the volatility of an asset is to place the return it has had over a period and the return obtained in each session made in such a way that these results can be expressed in percentages or in pips depending on what you want to obtain, although it is a risk indicator, it can also be said that it represents the value of the intensity and frequency of the variation of the price that will be supported in the investment; in other words, it does not by itself increase or decrease the probability of winning or losing.
The use of volatility can occur in a situation in which a constant evolution of the value of an asset provides a profit opportunity for a trader, in which an index of anticipation to the reactions of the market would be taken into account in order to take advantage of this factor for a short period of time. When a trend is bullish the risk of trading is low because orders enter and exit the market quietly.
Throughout the upward progression that develops at the time, when this value reaches the peak of the upward trend it means that the asset has fully matured and will not exceed the maximum value it reaches and it is then that it begins to have a proportional decrease generating in such a way a chain reaction and can be visualized in a desperate sale of the asset by the investor before this reaches a critical point at which the advantage that was originally had can become a net loss due to the collapse of prices, which is why the use of volatility can be a benefit at first to buy or sell but you must go a step further before the value of any asset decreases thus avoiding losses in financial operations.
Forex is an unregulated market
Forex is the largest market in the world and does not have a regulation since it is not centralized in a specific country, when operating in this market this is done through a Broker which acts as an intermediary between the trader and the currency market, however the Broker if it has a local regulation and is subject to the country in which this is established being a very good thing because if there is any inconvenience with the company that provides the service, the trader will be covered by the legislation of the country. When a Broker is regulated the name of the entity in charge must appear on the Broker’s page or in the contract at the time of creating an account on his platform to start trading Forex.
The fact that Forex is a decentralized market and is not regulated does not mean that the platforms that act as intermediaries also are, the regulations present in the Brokers is one of the most important criteria for the investors since it protects them against any fraud or embezzlement of their funds and of course it is vital to reinforce the security of the investments that are made.
When a Broker is regulated, the organisms in charge of doing so evaluate the situation in a short time since they examine every detail of the company that will act as intermediary, especially a follow-up of the fiscal situation that the company has in the country that resides is made, once all the parameters have been analyzed and if everything is in perfect order we proceed to the approval and the company is included in the list of regulated Brokers.
The protection available to the trader is against any theft or misuse of its resources by the platform, however this only applies if the platform has committed an act outside the contract stipulated, the rest is under the responsibility of the trader including any loss or deficit that accumulates.
Many Brokers offer very high leverage but the fact that they are available does not mean that they should always be used, when a financial transaction is made the higher this higher profits will be obtained but in the same way the bigger the loss would be if the transaction is not successful.
Many traders make an irresponsible use of leverage hoping to increase their profits in a proportional way and end up losing all the money because they do not make good use of it, using a very high leverage for a certain amount of money that is invested makes the level of risk that is run is very high so we recommend the responsible use of these for both novice traders and for professional traders, everyone knows the risk that runs when making investments in this market, however, one must be aware when making an investment so that it does not end in a total disaster and the money is thrown away unnecessarily.
How do I know if the strategy used reduces the risk of Forex trading?
The best way to know if the strategy used reduces the risk of having significant losses of money is to target a certain return within a stipulated period of time, if such a tactic is capable of improving the return with the least possible risk to trade can be considered that the strategy is successful and as Trader should be used to continue trading, however not always the same strategy will turn out so you have to be innovative and with experience agility to minimize risks and losses maximizing profits will come over time.
Avoid mistakes when managing investment risk
When you manage risk avoid making the mistake of risking more than you can lose in an investment, do not make the mistake of fantasizing that you will be able to make a profit quickly and that you will never lose an operation while trading , remember to invest the capital you are willing to lose.
Don’t let your emotions make you act impulsively when investing as this can increase the risk
When you are making a financial operation avoid that your emotions either of happiness or anger interfere with the investment you are making, this way you will avoid increasing the risk of having losses in the operations, if you are a person who is carried away by the feelings to act is very likely that the risk to operate increases and you have problems to be able to take profit and utilities to the investments, as long as you manage money in this market and in any other thing remember to be calm and with a clear mind only thinking about the steps you will take to make an action. I personally recommend doing mental exercises and relaxation before starting to invest to be one hundred percent relaxed.