There is a priori no investment that presents no risk. As with any investment, Forex, therefore, offers opportunities. But also presents real risks when these are too important or poorly controlled by the trader. In terms of opportunities, the Forex market is a huge market with extremely high liquidity for a very limited number of products (large currency pairs). Besides, the Forex market is open 24 hours a day, five days a week, and therefore gives the possibility of opening or closing a position at any time.

Risks of volatility and leverage

Leverage and volatility could be your best friend or the worst enemy, depending on how careful you are.

The Forex’s volatility and especially the leverage effects, which amplify its impacts, mean that the losses can be rapid and significant.

The leverage offered (sometimes going up to 400 times the account amount) makes Forex a risky market. It should therefore be used with reason. Indeed, for an investor who has placed 1,000 euros, with a leverage of 100 (i.e., 100,000 euros on a spot currency purchase transaction) and who experiences a favorable variation of 1%, the increase in his capital is spectacular. However, if this same variation is unfavorable by 1%, the loss can quickly erase most of its capital.

Risk management is therefore essential. This management involves defining a rigorous trading plan and the hedging of all the trader’s positions by resorting to stop-loss orders.

Forex is, therefore, a market that presents multiple opportunities for gains. Still, it implies a good mastery of the variables that influence the exchange rates, a good knowledge of technical analysis, and finally, perfect control of risks and risk-taking.

Is Forex riskier than stocks?

It all depends on a trader’s profile and strategies implemented. Investing in shares is generally less risky since it’s a long-term or medium-term investment. Forex trading more implies day trading and implementation of short-term strategies, therefore, imposes more risks. However, it all depends on someone’s trading style and ultimate trading goals.

The risk of entering the Forex with no or little knowledge

It is the riskiest thing to do when it comes to trading on Forex. People start trading without even trying to learn more about the currencies they trade. Or just begin trading right away more exotic currency pairs instead of sticking to less volatile and more popular like EUR USD or GBP USD etc. Also, the most frequent Forex trading victims are those who invest more than the amount they can afford to lose. So the priority is to allocate specific sums just for the trade without trespassing this plan. Having a trading plan prior to venturing into trading is a must for everyone who wants to avoid trading risks.

Beware of scams

Even experienced traders can be victims since scammers are sneaky ones and become more sophisticated every day. Not checking brokerage reviews and not doing your own research leads to falling into a scammer trap. So, don’t get hooked by the Forex brokerage company’s first advertisement, ignore phishing emails, and ”overnight become rich” offers.