What are the main risks now?
As a form of investment, there are risks.
What we need to do is be as risk-averse as possible.
Today, let’s introduce the main risks in foreign exchange trading.
1. High leverage risk Due to the leverage ratio used in the transaction, the amount of loss increased.
Especially when high leverage is used, even small moves against positions can lead to large losses.
FIG. 2 Market risk operates 24 hours a day, with no restrictions on trend.
When the volatility is high, you can experience the difference between heaven and earth in a day, because there are many factors that affect, no one can accurately judge the trend, so there is market risk in forex trading.
3. Risk The simplest exchange rate risk is the risk exposure caused by the dynamic change of value, especially the depreciation risk.
It happens when a country deliberately adjusts the value of its currency relative to another.
Devaluation is what countries will use.
Devaluation is determined by the issuing government.
One of the main reasons a country’s currency depreciates is to prevent trade imbalances.
When a country’s currency depreciates, the relative price of its exports falls, making its exports more competitive globally.
If a country’s currency depreciates, it may have to rise to control inflation.
In addition, the other major risk associated with a country’s currency depreciation is psychological.
Devaluation can be seen as a sign of economic weakness, which can endanger a country’s credibility.
Sometimes, a devaluation can lead to a devaluation of other countries’ currencies in response to a domino effect of devaluation of neighboring countries’ currencies.
This will only exacerbate the economic problems in global markets.
4. Interest rate risk According to basic principles of economics, if a country’s interest rate rises, its currency will appreciate, because the stronger the currency, the higher the return, and the country’s assets will attract investment inflows.
Conversely, if interest rates fall and investors start withdrawing their investments, the country’s currency will fall in value.
It is worth noting that a country’s interest rate and exchange rate tend to be closely correlated.
By carefully monitoring changes in interest rates, you will find that many times large institutions are focused on.
In general, there will be greater demand for higher-yielding currencies.
5. Credit Risk Credit risk is the risk that the dealer or broker of a particular transaction will not be able to pay, which may result from default or bankruptcy of a party.
In foreign exchange trading, there is no guarantee from an exchange or clearing house.
Brokers may be unable or refuse to comply with contracts if the market swings wildly.
The goal of credit risk management is to mitigate these risks.
When trading, traders should be aware of the foreign exchange broker rules and regulations in detail.
Does the forex broker maintain adequate reserves to cover the trader’s losses in case something happens?
6. Trading risk Foreign exchange margin trading is mainly carried out through the Internet.
Due to the characteristics of the Internet, it may not be able to connect to the phenomenon of the system, which may lead to huge losses for which the forex dealer is not responsible.
7. Broker Risk In China, foreign exchange transactions need to be conducted through the platform of foreign exchange brokers.
Therefore, we must prepare well in advance and find a reputable forex broker.
Some foreign-exchange brokers are not regulated, so the safety of traders’ money cannot be guaranteed.
Some large forex brokers are regulated by mainstream regulators, while some smaller ones choose to be regulated by offshore regulators.
One reason some forex brokers choose to operate offshore is that they can significantly reduce their overall operating costs.
Because obtaining and maintaining regulatory licenses can be costly.
In addition, capital requirements set by regulators could create a barrier to entry for many brokers unable to raise the necessary capital.
Generally speaking, it is best to choose the mainstream supervision of the foreign exchange broker cooperation 8. Fraud risk As a foreign exchange traders need to understand the risk is fraud risk.
In the early days of forex margin trading, fraud was rampant in the forex industry.
As global financial regulation has tightened in recent years, significant progress has also been made in weeding out unscrupulous brokers.
To reduce the chances of working with unscrupulous brokers, traders should do their due diligence with foreign exchange brokers they want to work with.
Foreign exchange margin trading is characterized by small costs and large profits.
It is because of this characteristic that investors tend to ignore risk in the pursuit of profit.
There are risks in the foreign exchange market and investment needs to be cautious.
Any investment involves risk, and risk is related to return, so don’t be afraid of risk.
It is important to find a way to avoid risk to the greatest extent possible.
I hope you can successfully invest!
