Forex trading is best known for giving attractive profits on short and long trades. While traders play with the movements of currency pairs and leverage out of the changes in the price movements, they also should be focused on the degree of risks associated with the price movements. Only those who are not averse to risks can be in this game. But, before one enters the arena, you need to know the pros and cons of the game.
While the investment opportunities in Forex market are surging high, so are the risks. Hence, a newbies in this market should know the pros and cons of the market & its movements. Forex market does not come up to the standards of a stock exchange. Dealing desk is the base of the Forex trading and one needs to be very careful while ‘dealing’ with a ‘dealer’. A good dealer can help a trader to leverage out the risk with increase in the profits.
Leverage is the key word of any Forex trade. A trader would want to leverage the risk of one trade through some other. Dealers increase the margin amount for the traders to enable them to trade more. A trader can utilize this margin level to do more trades, which is known as ‘leverage’. If the dealer gives 100 times margin to the trader, it simply means that a trader with an investment amount of $10,000 can trade up to a value of $1,000,000. The profit spread is definitely more with the higher margin, but so is the risk spread. A trader might not be well able to manage a $1 million trade, as compared to a $10,000 one. Hence, a trader should be very calculative on the risks and take only that much which fits his stride.
When it comes to a good or bad dealer, a bad dealer may not do the ‘bad’ through fraud. He is smart to get more dollars from the trader. Mostly retail dealers are the ones who can give a trader sleepless nights. Traders are enticed to go for margin trading and give stop-loss orders, in case if the price drops. This enables these market makers to close the trades on the price they actually want. In cases where the position is not offset, the loss of the trader becomes the gain of the dealer.
A trader should utilize the “stop-loss” order during times of high volatility. Even if the dealer encourages him to take risky positions enticing him of a huge profit bouquet, one should not fall prey to such promises. If the position turns out to be your enemy, then you have no one to blame for, except yourself. The market also throws some volatile movements during a day, like any important day announcements. A trader should be calculative on his positions during this time. Any trade or business carries some degree of risk and higher the risk, higher the sweets from it. Nothing is free from risk, but one should choose to take only that risk which he is capable of.