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 proportion of leverage used in trading, the amount of loss will also increase, especially when using high leverage, even a small change against the position will bring huge losses.
2. Market risk operates 24 hours a day and there is no limit to the trend.
When the fluctuations are intense, you can experience heaven and earth in a day.
There is market risk in forex trading because there are so many factors that no one can accurately judge the trend.
3. Exchange rate risk The simplest exchange rate risk is the risk exposure caused by the dynamic change of value, especially the depreciation risk.
It happens when one country deliberately adjusts the value of its currency relative to another.
Devaluation is what the country 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 pulling out, 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 exchange or clearing house to guarantee it.
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 understand the rules and regulations of foreign exchange brokers in detail.
Does the forex broker maintain adequate reserves to prevent the occurrence of losses to the trader.
6. Trading risk Foreign exchange margin trading is mainly carried out through the Internet.
Due to the characteristics of the Internet, it will not be able to connect to the system.
This situation can lead to huge losses, for which foreign exchange dealers are 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.
While some large forex brokers are regulated by mainstream regulators, some smaller ones opt for offshore regulators.
One reason some forex brokers opt for offshore regulatory business is that brokers 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 entry barriers for many brokers unable to raise the necessary capital.
Generally, it is best to choose a foreign exchange broker regulated by the mainstream.
8. Fraud risk, as a kind of risk that needs to be understood, 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 research on foreign exchange brokers they wish 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.
Note that there are risks in the foreign exchange market and investment should be cautious.
Any investment involves risk, and risk is related to return, so don’t be afraid of risk.
It’s important to find a way to maximize your risk aversion, and hopefully you’ll be able to invest successfully.
The dollar rose, gold fell sharply after hitting 1,820, and oil rose for a fifth straight day.
Please pay attention to the specific operation, the market is changing rapidly, investment needs to be cautious, the operation strategy is for reference only.
