There are a few odds stacked against retail traders as they gain considerable leverage to turn rich very soon.
Swiss franc and other violent gyrations aren’t seen usually even when the currencies seem volatile. Amongst a variety of risks borne by retail forex trading, a big risk factor is projected by their excessive leverage. Across different nations, regulators are known to clamp it down.
Reward from Asymmetric Risk: Under circumstances when the currency calls are proven correct, small losses are kept by the more experienced forex traders as they utilize sizeable gains to offset such losses. A majority of retailers try doing it in a different manner while considering different positions for earning smaller profits. They will even hold on to their losing trade for a longer period of time and sustain great losses. The outcomes might even cause a trader to lose his initial investment.
System Malfunction: A system failure or a platform malfunction might restrict your trading chances even when you might hold a senior position. Such malfunction could be caused by a system crash or an internet overload. Under circumstances when stop losses or similar orders don’t work, the situation is volatile enough to create this situation. Prior to January 15, 2015, many traders experienced stop loss restrictions on the brief Swiss franc positions. Drying up of liquidity has proven it to be ineffective at a time when everyone tied closing the franc positions.
No Information Edge: The trading operations of forex trading banks are huge and connected with the currency world. They will always have an edge in terms of volume of information that they possess over the retailers. Much of the government intervention is affected by commercial forex as they flow.
Volatility of Currency: Don’t forget the instance of Swiss franc. Leverage worth high degrees indicate a fast depletion of trading capital through an unpredictable volatility of currency as it occurred during the first half of 2015.
OTC Market: In comparison to future markets, any over the counter market like the forex market is regulated and not centralized. This gives us a clear indication that there’s no clearing organization that guarantees these forex trades. It enhances counter party risk.
The Bottom Line
You must follow the safety tips if you really wish to try your hand at the forex trading market. You must opt for a reputable forex broker, restrict your stop-losses and restrict your leverage to make the most of this kind of trading. You may try out a few good alternatives to this kind of trading by opening any mini account forex if that’s more feasible. You may read through the expert tips provided by a few websites. To a great extent, you’ll be able to level your playing field at a time when the odds get stacked against you.